When tax season hits, you want to be prepared at any cost — especially if you’re a startup or small business where every dollar counts. 

Here’s doola’s comprehensive guide to 15 startup tax-saving tips and strategies that can significantly reduce what you owe. Whether you’re just getting started with your business or already up and running, these tips can help you save and make sure you’re not overpaying the IRS. 

And, if you also want to keep your books and finances in order, chat with our experts and pick up some handy hacks to keep everything squeaky clean.

1. Choose the Right Business Structure (Sole Proprietorship, LLC, S-Corp, C-Corp)

The business structure you choose is the foundation of your tax obligations. LLCs and S-Corps often provide tax advantages, like reducing self-employment taxes, while a C-Corp offers flexibility in how profits are taxed. 

For example, an S-Corp allows you to split your income between salary and dividends, reducing the amount of self-employment tax you pay.

In addition, LLCs are taxed as pass-through entities, meaning profits are taxed at your personal income rate, avoiding double taxation. But, if you plan to raise venture capital, C-Corps might be better because investors prefer them, even though they face double taxation — corporate tax and personal tax on dividends.

doola’s Pro Tip: If you’re scaling fast, consider starting with an LLC for its tax flexibility, and later transitioning to an S-Corp as your business grows. Talk to a doola tax consultant to map out your business growth and select the structure that best suits your long-term goals from day one.

2. Maximize Your Startup Costs Deduction

The IRS allows you to deduct up to $5,000 in startup expenses in your first year of business. These costs include market research, legal fees, and advertising needed to open your doors. Anything over $5,000 can be amortized over 15 years.

Now,  let’s say you spend $10,000 setting up your business — things like forming your LLC, hiring an attorney, or paying for initial marketing campaigns. You can deduct $5,000 right away, and the rest ($5,000) is written off slowly over time.

Here’s our two cents:  Keep receipts and track every startup-related expense. If the IRS audits you, you’ll need proof of those expenses. No escaping from that.

3. Deduct Home Office Expenses — But Do It Right

Running your startup from home? No worries. You can deduct a portion of your home expenses (like mortgage or rent, utilities, and maintenance), but only if you use that space exclusively for business.

But keep this in mind: The space must be used solely for work — no mixing it with your living room or guest room. Measure the square footage of your workspace, and then divide that by your home’s total square footage to determine what percentage of home expenses you can deduct.

For example, If your home office takes up 10% of your home’s total area, you can deduct 10% of your rent, utilities, and internet bill.

4. Leverage Section 179 for Big Equipment Purchases

The Section 179 deduction lets you deduct the full purchase price of qualifying business equipment in the year you buy it. This applies to things like office furniture, machinery, and even off-the-shelf software.

Imagine you buy $20,000 worth of computers and office desks in 2024. Instead of deducting a small portion each year (through depreciation), you can deduct the full $20,000 this year using Section 179.

Bear in mind that not all equipment qualifies, so check IRS guidelines or speak to your accountant to ensure your purchases fit within Section 179 rules.

5. Don’t Miss the 20% QBI Deduction

The Qualified Business Income (QBI) deduction lets eligible business owners deduct up to 20% of their net business income. This deduction applies to pass-through entities like LLCs, S-Corps, and partnerships.

If your taxable income is under a certain threshold (currently $182,100 for single filers and $364,200 for joint filers in 2024), you can take the full deduction. Above that, limitations kick in, especially for certain professional service businesses (like lawyers, consultants, or doctors).

So, If your small business made $100,000 in profit, you could deduct $20,000 under the QBI deduction, reducing your taxable income significantly.

6. Fully Deduct Marketing and Advertising Costs

Everything you spend on getting your brand out there — whether that’s Facebook ads, billboards, or even a new website — is fully deductible. Advertising is considered a necessary business expense, so don’t miss this one!

Pro Tip: Even seemingly small expenses like printing flyers or boosting social media posts count, so track all your marketing-related costs. For instance, If you spent $10,000 on digital ads and $5,000 on creating your website, that’s $15,000 off your taxable income. Keep those receipts and invoices handy for tax season.

7. Take Advantage of the R&D Tax Credit

If your startup is in the innovating stage — whether you’re developing new products, software, or improving processes — you could be eligible for the Research & Development (R&D) tax credit. This credit can be applied against your income tax, and in some cases, payroll taxes.

R&D tax credits are often overlooked. Work with a tax professional to navigate the specific tax rules and claim this one.

8. Contribute to a Tax-Deferred Retirement Plan

Setting up a retirement plan like a SEP IRA or Solo 401(k) can reduce your taxable income while building a nest egg for your future. In 2024, you can contribute up to $66,000 to a Solo 401(k) depending on your income.

If you haven’t set up a retirement plan, consider it as soon as you can. The sooner you start contributing, the bigger your tax savings and retirement cushion will be.

9. Deduct Self-Employed Health Insurance Premiums

If you’re paying for your own health insurance as a business owner, you can deduct 100% of the premiums from your taxable income. This applies even if you don’t itemize your deductions.

This deduction applies to medical, dental, and long-term care insurance premiums for you, your spouse, and your dependents.

10. Depreciation Deductions for Business Assets

Even if you don’t take the full deduction upfront under Section 179, you can still deduct the cost of your business assets over time through depreciation. This applies to long-term assets like office furniture, computers, vehicles, machinery, and other equipment that help run your business.

Here’s how it works: If you buy a $5,000 computer for your business, instead of deducting the entire amount in one year, you can spread the deduction out over its useful life, which for a computer might be five years.

This means you could deduct $1,000 each year for five years. Depreciating assets like this allows you to gradually reduce your taxable income, which can be helpful for long-term tax planning.

doola’s Pro Tip: Keep detailed records of all your asset purchases and their depreciation schedules. This way, you’ll stay organized and avoid confusion when it’s time to file your taxes.

11. Claim the Work Opportunity Tax Credit (WOTC)

If you’re hiring employees, you can qualify for the Work Opportunity Tax Credit by hiring from specific groups, such as veterans, people from low-income areas, or individuals with disabilities.

You can claim a credit for a portion of the wages paid to these employees — typically 25% or 40% of first-year wages, depending on the number of hours worked. But make sure you have the necessary documentation in place when you hire to verify eligibility for the WOTC.

12. Business Travel Expenses Are Deductible

Any travel you do for business purposes, such as attending a conference or meeting clients, can be deducted from your taxes. This includes airfare, lodging, meals (at 50%), and even car rentals.

To qualify, the trip must be directly related to your business. No mixing business with pleasure — if you spend an extra day sightseeing, that part’s not deductible!

13. Deduct 50% of Business Meals

Business meals are 50% deductible, which means half of the cost is subtracted from your taxable income. The key is to make sure the meal is directly related to business, whether you’re meeting a client, a potential partner, or even having a meal during a business trip.

doola’s Pro Tip: Always document the business purpose on your receipt — who you met with, what was discussed, and why it relates to your business.

14. Track Charitable Donations

If your business donates money or goods to a qualified 501(c)(3) charity, you can deduct those contributions. For goods, deduct the fair market value, but make sure you keep receipts or acknowledgement letters from the charity.

For example, if your business donates $1,000 to a nonprofit, you can deduct that amount from your taxable income, reducing the amount you owe to the IRS.

15. Organize Your Books and Keep Track of Everything

This might not seem like a tax tip, but trust us — keeping your records organized is very very IMPORTANT. Not only will it help you find deductions, but in case of an audit, clean records will save you tons of stress. Invest in accounting software or hire a bookkeeper from doola.

Maximize Your Tax Savings With doola

Tax season can be intimidating for startups, but it doesn’t have to be. 

With these 15 tax-saving strategies, you’ll be able to hold onto more of your money and keep your business running strong.

The key is staying organized, taking advantage of every deduction, and getting expert help when you need it. That’s where we come in. Smart financial planning is the backbone of your startup’s success, so don’t let the IRS take more than its fair share.

Ready to keep more of what you’ve earned? Book a free consultation with us today, and let’s make sure you’re getting all the savings you’re entitled to.