1. Accelerating Expenses

If your business operates on a cash basis, one of the simplest strategies is to accelerate deductible expenses into the current year. By prepaying certain expenses — such as rent, insurance, or supplies — you legally shift deductions into this year, reducing taxable income now rather than later.

The IRS allows this under specific guidelines, including the “12-month rule” for prepaid expenses. The key is planning. Waiting until the last week of December to scramble rarely produces meaningful savings. Strategic acceleration requires foresight and coordination.

This strategy is not about spending more money than you need — it’s about timing the expenses you were going to incur anyway. Done correctly, it smooths your cash flow and aligns deductions with higher-income years.

2. Deferring Income

On the other side of the coin, cash basis taxpayers can often reduce taxable income by deferring income into the following year. This typically involves delaying invoicing or payment collection until January.

Deferring income isn’t avoidance. It’s simply shifting when revenue is recognized. For many small businesses, this creates room to manage taxable income more effectively, especially if you expect a lower tax rate or higher deductions in the upcoming year.

However, income already earned or constructively received cannot be deferred. The IRS requires consistency and clear documentation. Used properly, income deferral is one of the cleanest, most time-tested tax planning tools available.

3. The Augusta Rule

The Augusta Rule, named after the city where homeowners rented their properties during the Masters golf tournament, allows you to rent your home to your business for up to 14 days per year. Under Internal Revenue Code §280A(g), that rental income is excluded from your personal taxes, while your business deducts the expense.

Common applications include hosting company meetings, client gatherings, or training sessions at your home. The key is documentation — establish a fair rental value, create invoices, and keep meeting records. Without proper paperwork, the deduction may not hold up under audit.

For small businesses, this rule is an elegant way to convert existing personal space into a legitimate, tax-advantaged business expense.

4. Home Office + Reimbursements

Many small business owners hesitate to claim the home office deduction, fearing it will trigger scrutiny. The truth: when applied correctly, it is a legitimate and valuable tax benefit. The IRS provides two methods — a simplified option based on square footage, or an actual expense method allocating a percentage of housing costs.

In addition to the home office itself, businesses can reimburse employees (including owners in certain structures) for business use of personal assets like cell phones, internet, and utilities. These reimbursements are deductible to the business and nontaxable to the employee when properly documented.

Rather than a “red flag,” the home office deduction is a common-sense strategy to recognize real business expenses. Proper documentation is the dividing line between advantage and risk.

5. Mileage and Vehicle Use

One of the most frequent questions small business owners ask is whether to purchase vehicles in the business name. While possible, doing so often triggers higher commercial insurance premiums and complex ownership rules. A practical alternative is to track and deduct business mileage on personal vehicles.

The IRS provides a standard mileage rate, which covers depreciation, fuel, maintenance, and insurance. To qualify, you must maintain a contemporaneous mileage log with dates, destinations, and business purpose. Apps and software have made this easier than ever.

This approach balances risk and reward: it delivers meaningful deductions without the pitfalls of company-owned vehicles, and it is well-supported in an IRS audit if records are kept properly.

6. S Corporation Structure and Compensation Planning

Choosing the right entity structure can save small business owners thousands. The S corporation is one of the most powerful tools because it allows owners to split business income between salary (subject to payroll taxes) and distributions (not subject to self-employment tax).

This requires careful planning. The IRS mandates that S corporation owners take a “reasonable salary,” which must be defensible. Beyond that, the distribution strategy creates measurable savings compared to a sole proprietorship, where all net income is subject to self-employment tax.

Compared to C corporations, S corporations avoid double taxation on dividends. Entity choice is not one-size-fits-all, but for many small businesses, the S corporation strikes the right balance of tax efficiency and compliance.

7. Retirement Plans for Business Owners

Retirement plans are among the most effective ways for business owners to reduce current taxes while building long-term security. Options include SEP IRAs, Solo 401(k)s, and SIMPLE IRAs. Each offers unique contribution limits, administrative requirements, and benefits.

Beyond the immediate deduction, retirement plans allow you to shift income into the future, where it can grow tax-deferred. Offering retirement plans also enhances employee retention and benefits packages, strengthening the business as a whole.

Choosing the right plan depends on factors such as business size, profitability, and goals. The tax benefits are significant, but the strategic benefits — rewarding yourself and your team — are just as powerful.

8. Hiring Family Members

Employing family members can shift taxable income into lower brackets while keeping money within the household. Children can perform legitimate work — from managing social media to assisting with filing or operations. Wages paid are deductible to the business, while the child often owes little or no income tax depending on total earnings.

Hiring a spouse can create access to retirement plans and business-paid benefits. The key is legitimacy: work must be real, compensation must be reasonable, and records must be maintained.

Family employment is one of the oldest strategies in the tax code, and when executed properly, it remains one of the most effective.

9. Section 179 and Bonus Depreciation

The tax code allows businesses to deduct the full cost of qualifying equipment, technology, vehicles, and furniture placed in service during the year. Section 179 provides immediate expensing up to statutory limits, while bonus depreciation accelerates write-offs for certain property.

These provisions are designed to encourage investment and growth. They are particularly effective in high-income years when maximizing deductions is critical. The key is ensuring that assets meet business-use thresholds and that records clearly support the deduction.

Properly applied, these depreciation strategies transform capital expenditures into immediate tax savings.

10. Cost Segregation Studies

For businesses that own real estate, cost segregation is a powerful but underutilized tool. A cost segregation study reclassifies building components into shorter depreciation schedules, allowing owners to accelerate deductions.

Elements such as fixtures, flooring, and certain systems may qualify for faster depreciation. This reduces taxable income significantly in the early years of ownership, improving cash flow and freeing capital for reinvestment.

While cost segregation requires a professional study to be defensible, the benefits can be substantial. For businesses with commercial or rental property, it is a strategy worth considering.

About Polaris Tax & Accounting

Polaris Tax & Accounting is not just another accounting firm. We are a team of federally licensed Enrolled Agents — the highest credential the IRS awards — representing clients in all 50 states. Our focus is clear: protect your income, reduce your taxes, and keep you compliant.

We don’t sell cookie-cutter solutions. We build strategies that withstand IRS scrutiny and create measurable results. Business owners hire us because we combine technical expertise with forward-looking planning. Our clients stay protected, stay compliant, and save more of what they earn.

Our Services

• IRS Tax Resolution: From audits to back taxes, we negotiate directly with the IRS to protect your business and restore compliance.
• Proactive Tax Planning: Multi-year strategies designed to reduce taxes legally and maximize cash flow.
• Bookkeeping & Advisory: Clean, accurate financials that drive smarter decisions and IRS-ready compliance.
• Business & Individual Tax Preparation: Returns prepared with precision, aligned with your overall tax strategy.