Tax Planning for Business Owners: A Tax Planning Guide

Introduction: Why Business Tax Planning is Critical

Chapter 2: Income Splitting and Compensation Strategies

Chapter 3: Strategic Expense Deductions

Chapter 4: Retirement and Benefit Plan Optimization

Chapter 5: Tax Credits for Business Owners

Chapter 6: Depreciation and Section 179 Strategies

Chapter 7: Estimated Taxes and Cash Flow Planning

Chapter 8: Multi-Entity and State Tax Considerations

Chapter 9: Exit Planning and Capital Gains Minimization

Introduction: Why Business Tax Planning is Critical

Tax planning is not just a year-end task — it’s a proactive, strategic tool that business owners must leverage year-round to maximize profits, minimize liabilities, and ensure long-term sustainability. For entrepreneurs juggling operations, payroll, and growth, the complexity of ever-evolving tax laws can lead to costly oversights. Many businesses overpay taxes or miss critical deductions simply because they lack expert guidance. At Lakeline Tax, we specialize in helping Texas-based businesses — including those in Austin, Cedar Park, Leander, and Round Rock — develop proactive tax strategies to legally reduce their tax burden while remaining compliant. Whether you’re a solo operator, LLC, or multi-entity owner, our expert tax professionals offer tailored solutions that adapt to your growth and industry.

Tax Planning Strategies

Countless tax planning strategies are available to small business owners. Some tax strategies target the owner’s individual tax situation, and others target the business itself. Regardless of how simple or how complex a tax strategy is, its intention will be to accomplish one or more of these often-overlapping goals:

Reducing the amount of taxable income
Lowering your tax rate
Controlling the time when the tax must be paid
Claiming any available tax credits and deductions
Controlling the effects of the Alternative Minimum Tax
Avoiding the most common tax planning mistakes

To plan effectively, you’ll need to estimate your personal and business income for the next few years. Many tax planning strategies will save tax dollars at one income level but create a larger tax bill at other income levels. You will want to avoid having the “right” tax plan made “wrong” by erroneous income projections. Once you know your approximate income, you can take the next step: estimating your tax bracket.

You should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates are, the better the odds that your tax planning efforts will succeed.

Chapter 1: Choosing the Right Business Entity

Selecting the appropriate business structure (Sole Proprietor, LLC, S-Corp, or C-Corp) has far-reaching implications on your taxes, liability, and compliance. For example, while an LLC provides flexibility, an S-Corp election may offer tax-saving opportunities through pass-through income and payroll structuring. A C-Corp might be optimal for high-growth companies reinvesting profits, but it comes with double taxation. We walk you through the pros and cons, how ownership structure affects taxes, and when restructuring might save you money. Proactive planning can also help you avoid pitfalls like self-employment tax overload or missed elections like the S-Corp deadline (Form 2553).

Chapter 2: Income Splitting and Compensation Strategies

If your business involves family members or partners, income splitting can reduce overall tax liability. Paying a reasonable salary to spouses or adult children involved in the business can lower your income and shift earnings into lower tax brackets. Similarly, salary vs. dividend decisions in an S-Corp impact not just your personal taxes but your future retirement contributions. We help you determine a tax-efficient compensation structure while maintaining compliance with IRS reasonable compensation guidelines. Proper documentation is crucial to withstand audits.

Chapter 3: Strategic Expense Deductions

Business meal expenses are legitimate deductions that can lower your tax bill and save you money, provided you follow certain guidelines. Business must be discussed before, during, or after the meal to qualify as a deduction. Furthermore, the surroundings must be conducive to a business discussion. For instance, a small, quiet restaurant would be an ideal location for a business dinner. A nightclub would not.

Under the Tax Cuts and Jobs Act of 2017, the deduction remains at 50 percent for taxpayers who incur food and beverage expenses associated with operating a trade or business. Employee meals while on business travel also remain deductible at 50 percent. For tax years 2018 through 2025, the 50 percent deduction expands to include expenses incurred for meals furnished to employees for the employer’s convenience. Amounts after 2025 are not deductible, however.

Under the TCJA, the deduction for business entertainment expenses was eliminated.

If you use your car for business, such as visiting clients or going to business meetings away from your regular workplace, you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses. The mileage reimbursement rate for 2024 is 67 cents per business mile.

If you own two cars, another way to increase deductions is to include both cars in your deductions. This deduction works because business miles driven is determined by business use. To figure business use, divide the business miles driven by the total miles driven. This strategy can result in significant deductions. Whichever method you decide to use to take the deduction, always keep accurate records such as a mileage log and receipts.

Most business owners underutilize deductible expenses due to poor recordkeeping or misunderstanding IRS rules. At Lakeline Tax, we educate clients on identifying and maximizing deductions such as vehicle use, business travel, home office deductions, startup costs, and qualified education. Even items like meals, memberships, and employee benefits can provide legal write-offs if structured properly. We review your expenses quarterly to identify missed opportunities and ensure proper substantiation.

Chapter 4: Retirement and Benefit Plan Optimization

Retirement planning is not only smart for your future — it’s a powerful tax-saving strategy. Business owners can contribute substantially more through SEP IRAs, SIMPLE IRAs, or solo 401(k) plans than standard individual contributions. For example, a solo 401(k) allows up to $69,000 in contributions for 2024 (with catch-ups). Setting up a defined benefit plan can also help high-income earners shelter more. We evaluate your income projections and guide you in selecting the right plan while balancing liquidity and growth goals.

Chapter 5: Tax Credits for Business Owners

Tax credits directly reduce your tax liability dollar-for-dollar and are often underutilized. Key credits include the R&D tax credit (even for software or workflow improvements), Work Opportunity Tax Credit (WOTC) for hiring from certain groups, and credits for clean energy investments or ADA compliance. We help you identify applicable credits, document eligibility, and file the correct forms (e.g., Form 6765, Form 5884). These credits can be especially valuable for technology, healthcare, and manufacturing firms in Texas.

Chapter 6: Depreciation and Section 179 Strategies

Section 179 expensing for tax year 2024 allows you to immediately deduct, rather than depreciate over time, $1,220,000 of the first $3,050,000 of qualifying equipment placed in service during the current tax year. Equipment can be new or used and includes certain software. All depreciable equipment in a home office meets the qualification. Indexed to inflation for tax years after 2018, the deduction was enhanced under the Tax Cuts and Jobs Act of 2017 to include improvements to nonresidential qualified real property such as roofs, fire protection, alarm systems, security systems, and heating, ventilation, and air-conditioning systems.

Businesses with eligible property placed in service after September 27, 2017, and before January 1, 2023, were allowed to deduct 100 percent of the cost immediately. This first-year bonus depreciation is being phased downward over four years: 80 percent in 2023, 60 percent in 2024, 40 percent in 2025, and 20 percent in 2026.

Using depreciation rules smartly can accelerate deductions and reduce current-year taxes. Section 179 allows immediate expensing of qualified equipment, software, or vehicles (up to $1.22M for 2025). Bonus depreciation remains at 60% in 2025, with a gradual phase-down through 2027. Real estate investors can benefit from cost segregation studies to maximize depreciation. Our experts guide you through acquisition planning, asset categorization, and recapture rules.

Chapter 7: Estimated Taxes and Cash Flow Planning

Failing to plan for quarterly estimated taxes can lead to penalties and disrupt cash flow. We build a quarterly tax forecast based on income trends, seasonal cycles, and bonus strategies to ensure you’re not under- or overpaying. Business owners in growth mode need careful coordination between tax payments and reinvestment needs. Our proactive planning eliminates tax season surprises and strengthens working capital.

Chapter 8: Multi-Entity and State Tax Considerations

Businesses expanding across state lines or operating multiple entities face complex tax scenarios. From apportionment rules to intercompany transactions and franchise tax, multi-entity operations demand careful planning. Texas has no individual income tax but does impose franchise taxes and sales tax complexities. We help design entity structures that optimize for liability protection and tax efficiency while complying with Texas Comptroller and IRS standards.

Chapter 9: Exit Planning and Capital Gains Minimization

Whether you’re preparing to sell your business, transfer it to heirs, or dissolve it, your exit plan will significantly impact taxes. With advanced planning, we can structure sales as asset or stock sales, use installment sales to spread gain, or leverage QSBS exclusions. Estate planning vehicles like grantor trusts or family LLCs can help minimize capital gains. We work closely with your attorney and financial advisor to integrate your exit plan with your tax strategy.

Conclusion: Get Expert Guidance Today

Tax planning is not a once-a-year task; it’s a continuous strategy for protecting your wealth, optimizing operations, and achieving your business goals. At Lakeline Tax Services, we bring deep experience in IRS compliance, entity strategy, and industry-specific tax savings to small business owners across Austin, Cedar Park, Leander, and surrounding Texas cities. Schedule a consultation today and let our experts build your personalized tax strategy.

Call (512) 335-8037
Visit: www.lakelinetax.com
Email: info@lakelinetax.com