Choosing the right tax strategies for your LLC or corporation can make a major difference in your business’s financial health. Whether you’re running a small freelance operation or a growing enterprise, understanding how to minimize taxes legally and effectively is key. Here are the best tax practices for LLCs and corporations that can help you save money, stay compliant, and plan for growth.
1. Choose the Right Tax Classification
LLCs offer flexible taxation.
- Default for single-member LLCs: Taxed as a sole proprietorship.
- Default for multi-member LLCs: Taxed as a partnership.
- Elect S Corp status: Many LLCs can file IRS Form 2553 to be taxed as an S Corporation, which may reduce self-employment taxes.
Corporations can be C Corps or S Corps.
- C Corporations are taxed separately from owners and may face double taxation.
- S Corporations pass profits and losses to shareholders, avoiding corporate-level tax — but come with ownership and income limits.
Consult a tax advisor. Choosing the best structure depends on your income, goals, and growth plans.
2. Separate Personal and Business Finances
Open a dedicated business bank account. Never mix personal and business funds — this maintains legal protection and simplifies tax prep.
Use a separate credit card. Track business expenses and establish a credit history for your company.
Pay yourself properly.
- LLC owners (default taxation): Take owner’s draws.
- S Corp owners: Pay a “reasonable salary” and take additional income as distributions, which may be taxed at a lower rate.
3. Deduct All Eligible Business Expenses
Common deductions include:
- Office rent or home office portion
- Equipment, software, and supplies
- Business travel and meals (50% deductible)
- Advertising and marketing
- Internet and phone bills used for business
- Professional services (legal, accounting, etc.)
- Education and training related to your industry
Document everything. Keep receipts, invoices, and digital logs — the IRS may require proof.
4. Take Advantage of Depreciation
Deduct large purchases over time. Equipment, furniture, and other assets used in your business can be depreciated for tax savings.
Use Section 179 for faster deductions. This lets you deduct the full cost of qualifying assets (like computers or machinery) in the year of purchase, up to the IRS limit.
Bonus depreciation may apply. Businesses can write off 60% of eligible purchases in 2025 (phase-out from prior 100% level).
5. Plan for Quarterly Estimated Taxes
Avoid penalties by paying taxes throughout the year. LLCs and corporations typically must make estimated payments on:
- Income tax
- Self-employment tax (for LLCs)
- Payroll tax (for corporations with employees)
Use IRS Form 1040-ES or 1120-W to calculate what you owe. It’s better to overestimate slightly than underpay and face penalties.
6. Use Accountable Reimbursement Plans
Reimburse owners and employees tax-free. With an accountable plan, your business can reimburse for things like mileage, travel, or home office use without those payments being considered taxable income.
Must follow IRS rules: Submit receipts and keep documentation to avoid having the reimbursement treated as income.
7. Consider a Retirement Plan
Tax-advantaged savings for you and your employees. Options include:
- SEP IRA: Simple to set up, great for solo owners or small teams
- SIMPLE IRA: For businesses with under 100 employees
- Solo 401(k): High contribution limits for solo business owners
- Traditional 401(k): Best for larger businesses or those seeking robust employee benefits
All offer tax deductions for employer contributions.
8. Leverage the Qualified Business Income (QBI) Deduction
Pass-through entities may deduct up to 20% of qualified business income. This includes most LLCs and S Corps, subject to income limits and business type.
Phase-outs apply. For 2025, the deduction phases out above $191,950 (single) or $383,900 (married filing jointly) — depending on the type of business.
Work with a tax professional. The rules can be complex, especially for service-based businesses like law, health, or consulting.
Final Thoughts
Smart tax practices can keep your LLC or corporation legally compliant while reducing your overall tax burden. From selecting the right entity type to maximizing deductions and planning contributions, every decision counts. Make tax planning a year-round habit — not just a last-minute scramble — and consider partnering with a CPA or financial advisor who specializes in business tax strategy. That way, you can focus more on growing your company and less on writing checks to the IRS.