7 Little-Known Tax Hacks Every Entrepreneur Should Use

7 Little-Known Tax Hacks Every Entrepreneur Should Use

Running a business means handling all sorts of financial tasks. One of the most important, and often the most frustrating, is dealing with taxes. While paying taxes is unavoidable, there are some lesser-known hacks that can help reduce your tax burden. These tips can make a big difference to your bottom line, leaving you with more money to reinvest in your business or pay yourself.

1. Use the Home Office Deduction

If you work from home, there’s a good chance you qualify for the home office deduction. This is one of the simplest ways to reduce your taxable income. The IRS allows you to deduct a portion of your home expenses, like rent or mortgage interest, utilities, and even internet costs, based on the size of your office.

How it works:

• To qualify, your home office must be used regularly and exclusively for business purposes. If you only use it sometimes, you can’t claim the deduction.
• The deduction is proportional to the size of your office. For example, if your home office takes up 10% of your home’s total square footage, you can deduct 10% of your rent, utilities, and other qualifying expenses.

This isn’t a complex deduction to claim, but you need to be mindful of the rules. The last thing you want is to trigger an audit by making a claim that doesn’t meet the IRS requirements.

2. Take Advantage of the Qualified Business Income (QBI) Deduction

The QBI deduction is a relatively new tax benefit available to pass-through entities like LLCs, S Corps, and partnerships. It allows you to deduct up to 20% of your business’s net income.

How it works:

• This deduction reduces your taxable income, meaning you pay less in taxes.
• You don’t need to itemize your deductions to claim it. You can simply take it as a deduction from your gross income.

However, it’s important to note that not all businesses qualify. Service-based businesses (such as consulting, law, or accounting firms) have stricter eligibility requirements based on income. But if your business qualifies, this is a significant tax savings opportunity.

3. Maximize Depreciation on Business Assets

When you buy equipment or other big-ticket items for your business, you can deduct the cost over time through depreciation. Depreciation spreads the cost of an asset over its useful life, which reduces your taxable income each year. However, the IRS allows a faster depreciation method for some items.

How it works:

• The Section 179 deduction allows you to expense the full cost of certain equipment or assets in the year they are purchased, rather than spreading the deduction over several years.
• Bonus depreciation lets you deduct a percentage of the asset’s cost (in 2025, this is 80%) in the first year.

If your business buys a lot of equipment, these deductions can really add up and significantly reduce your tax bill. Just make sure the equipment qualifies for these special deductions.

4. Consider Hiring Your Kids

This might sound odd, but it’s a legitimate tax strategy. If you run a family business and have children under the age of 18, you can pay them a salary and deduct the wages as a business expense. This works especially well for businesses that can use help with basic tasks like filing, data entry, or social media management.

How it works:

• You can pay your kids up to a certain amount ($13,850 in 2025) without them owing federal income taxes. The salary is also a deductible business expense for you.
• Your child doesn’t pay Social Security or Medicare taxes if they are under 18 and working for a family business.
• Just make sure the work is legitimate. The IRS could flag this if your child is not actually performing work for your business.

This strategy allows you to shift some of your income to your children, potentially reducing your overall family tax liability.

5. Don’t Forget About the R&D Tax Credit

If your business is involved in developing new products, processes, or technologies, you may be eligible for the Research and Development (R&D) tax credit. Many entrepreneurs don’t realize they qualify for this, but it’s available to a broad range of businesses, including startups, manufacturers, and tech companies.

How it works:

• The R&D credit lets you deduct a percentage of the costs associated with qualifying research activities, such as wages for employees working on R&D, supplies used in the process, and even some contractor costs.
• It can be a complicated credit to claim, so working with a tax professional is advisable to make sure you’re eligible and capturing all your eligible expenses.

This credit can lead to substantial savings, so if you’re involved in any form of innovation, it’s worth looking into.

6. Use Retirement Plans for Tax Deductions

Setting up a retirement plan for yourself and your employees isn’t just good for planning the future—it can also be a powerful tax-saving tool. Contributions to retirement accounts are generally tax-deductible, reducing your taxable income.

How it works:

• You can set up various types of retirement plans, such as a Simplified Employee Pension (SEP) IRA or a Solo 401(k), which allow you to contribute a larger percentage of your income than traditional 401(k)s.
• These contributions can reduce your taxable income in the current year, which means you pay less in taxes.

You can also deduct contributions to employee retirement plans, making it a great strategy if you have a team. It helps both you and your employees save for the future while also lowering your current tax liability.

7. Deduct Your Business Meals

The IRS allows you to deduct 50% of the cost of business meals if they are directly related to business activities. However, it’s important to meet specific criteria to claim this deduction.

How it works:

• The meal must be with a client, potential client, or business associate, and the primary purpose of the meal must be business-related.
• You can only deduct meals that are not lavish or extravagant, based on the circumstances.
• For 2025, the IRS has allowed a temporary increase to 100% deduction for meals provided by restaurants.

This means you can deduct a significant portion of meal expenses, whether it’s entertaining clients or having a lunch meeting. Just remember to keep detailed records of the meal, including who was present and the purpose of the meeting.

Final Thoughts

The key to reducing your tax burden as an entrepreneur is knowing which deductions and credits are available to you. The hacks listed here are just a few of the many opportunities that exist. By keeping track of your expenses and utilizing these lesser-known tax strategies, you can save a significant amount of money and keep more of your hard-earned income. Always consult with a tax professional to ensure you’re applying these strategies correctly and within the law, but don’t leave money on the table.