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how to pay less taxes

How to Lower Your Taxable Income and Pay Less in Taxes

If you’re wondering how to pay less in taxes, you’re not alone. Everyone—from individuals to business owners—wants to know how to lower their taxes. 

Tax laws are complicated and they can change each year. Our tax accountants know all the tax breaks for business owners and how to leverage them. With some guidance, you can legally reduce your tax liability and avoid paying more than you owe.

In this guide, we’ll go over how to lower taxable income and keep more of your profits while staying on the right side of the IRS. We’ll also share 12 tax-saving strategies, including a detailed explanation of each and how to determine if you qualify. 

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Tax filing status: How businesses file taxes

Business owners are responsible for filing taxes for their personal income as well as business income. You can file these together or separately, depending on what type of business you own. 

For example, if you own a C corporation, you’ll file business and personal taxes separately. However, if you run an LLC not taxed as a corporation, you’ll pay taxes as a pass-through entity. 

To differentiate: 

  • The IRS taxes a regular corporation—or C corporation—as a separate entity. The corporation uses Form 1120 to report income and claim credits and deductions each year. 
  • A pass-through entity doesn’t file taxes as a separate entity. Instead, the income “passes through” to the owner of the business who pays personal income taxes on their share of the business. 

The majority (95%) of businesses are pass-through entities. Below, we’ll cover how you can pay less in taxes on your business and personal income as a pass-through entity. 

How much do Americans pay in taxes?

You pay taxes as a percentage of your income. There are seven tax brackets in the US tax code, ranging from 10% to 37%. Everyone’s tax situation is different. 

There’s no one average tax bill, but the latest reports claim the average income tax payment in 2020 was $16,615. Thankfully, this amount isn’t paid all at once. Business owners pay estimated taxes quarterly, while employees pay a portion with every paycheck.  

It’s worth noting, however, that most people don’t pay that much. In 2020, Americans in the most common tax bracket—incomes between $50,000 and $75,000—paid an average of $4,567 in income tax. 

You pay a higher percentage of your income in taxes as your adjusted gross income (AGI) increases. Your AGI is the amount of your income that’s taxable after you subtract credits and deductions. 

You can drastically reduce your tax bill by taking advantage of all your business tax credits and deductions.

What is taxable income?

Taxable income is the amount of income that the IRS uses to calculate how much you owe in taxes each year. It includes earned income from your business or wages from a job. Also, it includes unearned income, such as interest from investments. Some important concepts to keep in mind regarding taxable income: 

  • Tax deductions lower your taxable income, which can land you in a lower tax bracket. If your taxable income drops to a lower tax bracket, the IRS could tax you at a lower rate.
  • Revenue – deductions = taxable income
  • Tax credits reduce your tax bill dollar for dollar. If your tax liability is $2,000, but you qualify for a $1,000 tax credit, you’ll only owe $1,000. 

Deductions and credits should be part of your overall tax-reduction strategy. We’ll go over both and suggest ways you can maximize them. 

12 tips on how to pay less in taxes

One benefit of working with Xendoo’s experienced tax specialists and CPAs is that we know how to save you money on taxes legally. Most tactics that can lower your tax bill fall into three categories. 

  • Deductions 
  • Credits 
  • Investment strategies or losses 

We’ll break down each of these and show you how to lower your taxable income to pay less in taxes. 

1. Pass-through tax deduction (QBI)

Congress passed the Qualified Business Income (QBI) deduction as part of the Tax Cuts and Jobs Act. It’s commonly known as the pass-through tax deduction and will end after the 2025 tax year. With the pass-through tax deduction, you can deduct up to 20% of your business income from a pass-through entity. 

Your overall business income or loss determines the pass-through deduction. If you have several businesses and an overall loss, you can’t claim it. This is true even if one or more of your businesses was profitable. 

Finally, you have to have taxable income to qualify. If the standard deduction or other deductions reduce your tax liability to zero, you won’t be able to claim it. 

There are also income limitations on “specified service” businesses, such as doctors and lawyers—who are likely highly paid and self-employed. If your income comes from one of the specified services, you still qualify for the pass-through deduction. However, it starts phasing out at $321,400 for married filing jointly or $160,700 for other filers. If your income is over $260,700 ($421,400 joint), the pass-through deduction decreases. 

The pass-through deduction can be complicated. (The IRS has 248 pages of guidance on it.) However, if you qualify, it can significantly lower your taxable income—at least through 2025. 

2. Charity donations

As a pass-through entity, you’ll claim charity donations on your Form 1040—your individual return. You must make charitable donations to an organization that the IRS recognizes. 

Your total charitable donations can’t be more than 60% of your AGI, including your business income. Some charities have lower limits. These are explained in the IRS Deductibility Status Codes

If you exceed this amount, you can carry over deductions for up to five years. Keep a record of your donation for documentation. You’ll need additional documentation for the below. 

  • Donations of cash or property worth over $250 require a letter of acknowledgment from the charity. 
  • Non-cash donations of $500 or more require you to fill out Form 8283. You’ll also need an appraisal if your total donations exceed $5,000. 

You can’t deduct the value of your volunteer time or services. However, you can deduct expenses related to volunteering like travel and mileage. 

3. Business expense write-offs

You can deduct expenses related to running your business. Most business owners don’t claim all these expenses, either because they don’t know about them or they don’t keep records. Some common business expense deductions include: 

  • Employee wages and benefits
  • Contract labor
  • Equipment purchases
  • Business insurance
  • Bank fees
  • Interest
  • Utilities
  • Car expenses
  • Travel expenses
  • Rent expenses
  • Education and training
  • Marketing expenses
  • Home office and office supplies

You can find details on each of these in our comprehensive list of small business tax deductions

4. Vehicle costs

If you use your vehicle for business purposes, you can deduct its expenses. You may also be able to deduct the cost of a company vehicle. 

You’ll use either the accrual or standard mileage rate to determine the deduction amount. The standard mileage for 2022 is 58.5 cents per mile for the first half of the year. It’s 62.5 cents per mile for the second half of the year. The standard mileage rate is more beneficial if your car gets good gas mileage and has low operating expenses. 

To figure out your mileage deduction, keep track of the miles that you drive for business purposes. You’ll also need to provide the total miles you drove the car. If you take the standard mileage, you can still deduct auto loan interest, vehicle taxes and fees, and parking and toll expenses. 

Your other option is to deduct the actual expenses. This includes auto-related expenses such as: 

  • Gas
  • Repairs
  • Maintenance
  • Insurance
  • Depreciation
  • Garage fees
  • Licenses 

You’ll need to keep track of your actual expenses and how many miles you drove the car. Calculate the business-related mileage by dividing the business miles by the total miles. Once you figure out the business-related mileage, deduct a corresponding percentage of actual costs. 

If you buy an electric vehicle, you can also qualify for the electric vehicle tax credit—up to $7,500. However, that’s a separate credit, not a deduction. 

5. Depreciation

Business equipment will lose its value over time as you use it. You can deduct the depreciation, although there are limits. You can use one of several methods to claim depreciation: 

  • Section 179 deduction – gives you a large deduction for the first year’s depreciation. For 2022, the deduction limit is $1,080,000
  • Bonus depreciation – deducts a larger amount of the purchase price for new vehicles and equipment. The Tax Cuts and Jobs Act increased the bonus deduction to 100% for 2022, but it will decrease each year. In 2023, it will be 80%, 60% the next year, and so on.
  • Modified Accelerated Cost Recovery System (MACRS) depreciation – deduct more depreciation during the early years you own an asset and a smaller amount in the later years. 
  • Business vehicle deduction – deduct up to $10,200, plus up to $8,000 in bonus depreciation. For an SUV (between 6,000 to 14,000 pounds), you can deduct the entire cost of the vehicle the year you buy it using bonus depreciation. 

6. Business startup costs

You can claim a deduction for the costs of starting your business. This deduction is capped at $5,000 for the first year if your total startup costs were under $50,000.

If your expenses were over $50,000, reduce the amount you deduct by the amount over $50,000. If your startup costs were over $55,000, you don’t qualify for a first-year deduction. 

Instead, you’ll need to spread out your expenses and claim them starting in your second year for 15 years. If you anticipate a loss in your first year, it may be better to break up your startup costs and use them to offset profits in later years. 

7. IRA contributions

There are several different types of IRAs, and they all offer tax advantages—although not all contributions are tax deductible. 


SEP IRAs are ideal if you’re self-employed or don’t have employees. They have much higher contribution caps than traditional IRAs—either $66,000 or 25% of total compensation, whichever is less. However, if you set up a SEP IRA for yourself, you also have to set up and fund one for all eligible employees for an equal percentage. Contributions to a SEP IRA are tax deductible. 


A SIMPLE IRA is a good option if your business has no more than 100 employees who earned at least $5,000 in the past year. Unlike SEP IRAs, employees can also contribute to SIMPLE IRAs. The SIMPLE IRA contribution limits are $1,400 for 2022 and contributions are tax deductible. 

Roth IRA

The contributions you make to a Roth IRA are not deductible. However, since you’ve already paid taxes on the money, you won’t have to pay taxes when you withdraw it. There are no penalties for early withdrawal. 

If you think you’ll be in a higher tax bracket when you retire, a Roth IRA can be the better option. As long as your income is less than $129,000 ($204,000 joint), you can open an IRA. You can contribute up to $6,000 (or $7,000 if you’re over 50) for 2022. However, you won’t be able to contribute as much if your income is higher than $129,000 ($204,000 joint).

2022 contribution limits $66,000 or 25% of total compensation $1,400 $6,000
$7,000 for those over 50
Are contributions tax deductible? Yes Yes No
Who’s it a good fit for? You’re self-employed or don’t have employees Your business has no more than 100 employees You’ll be in a higher tax bracket when you retire

8. Health insurance plan deductions

If you’re self-employed, you may be able to deduct insurance premiums for your family, including: 

  • Health 
  • Dental
  • Long-term care

Even if you take the standard deduction, you can still deduct insurance premiums. However, you can only claim this deduction if you or your spouse were not eligible for an employer-sponsored plan. You also need a net income to claim this deduction. 

If your small business offers health insurance to employees, you can also deduct the amount you contribute to their insurance premiums. It’s more complicated for partners and 2% S corporation shareholders, but you can still deduct health insurance premium contributions. 

9. HSA contributions

An HSA is a health savings account you can use to pay for qualifying medical costs. You’re only eligible for an HSA if you have a high-deductible insurance plan. Your contributions are tax-deductible, and the earnings and qualified withdrawals are tax-free. 

The maximum amount you can contribute for 2022 is $3,650 for yourself or $7,300 for your family. For 2023, the amounts increase to $3,850 for yourself and $7,750 for your family. The limits change yearly based on inflation. If you’re over 55, the limits are $1,000 higher.

2022 Tax Year Limits Single Plan  Family Plan
Max Contribution Limit $3,650 $7,300
Minimum Deductible $1,400 $2,800
Maximum Out-of-Pocket $7,050 $14,100
Over 55 Catch-up $1,000 $1,000

For retirement plans, don’t contribute more than the limit. Otherwise, you’ll lose the tax benefits, and you may have to pay a 6% penalty. Also, you have until next year’s tax deadline to make contributions, so you can deduct contributions for 2022 until April 2023.  

To claim a deduction for your HSA account, you don’t have to itemize it but you must have income. HSAs are one of the more complicated deductions. Below is guidance for different tax situations. If you’re unsure, consult one of our licensed tax CPAs.

  • Business owners or sole proprietors – you can’t contribute to an HSA with your pre-tax dollars. However, you can contribute with your after-tax money and deduct your contributions from personal income tax. 
  • LLCs with employees – you can make pre-tax contributions to an HSA. You can also deduct any contributions you make to their HSAs. If your business is an S corporation, the business can’t provide owners with tax-free contributions to HSAs. 
  • C corporations – the IRS taxes corporations as legal entities. For HSAs, it treats owners the same as employees. However, all contributions must still comply with IRS rules for employer contributions. 

10. Tax-loss harvesting

You can use losses on capital investments to offset capital gains taxes. The capital gains tax is what you pay when you sell an asset for a profit.

Tax-loss harvesting is a year-end strategy to lower your tax bill. You’ll need to sell an asset at a loss to claim this deduction. 

If your losses exceed your gains, you can deduct up to $3,000 from your personal income. You can claim losses over $3,000 in future years. But, don’t purchase a similar investment within 30 days—before or after—a loss. If you do, you can’t claim it. This is called a “wash sale.”

11. Student loan interest

You can deduct up to $2,500 of student loan interest if your MAGI is less than $70,000 or $145,000 filing jointly. Your MAGI is your AGI plus any untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. Student loans you took out for your spouse, dependents, or yourself qualify. 

If your MAGI is between $70,000 and $85,000 ($175,000 filing jointly), you can still claim some interest. However, you can’t claim the entire $2,500. Here’s a breakdown of the credit amounts depending on your filing status.

Maximum credit amount $2,500
Single, head of household income (MAGI) limit Less than $70,000 – eligible for the full amount
$70,000- $85,000 – partial credit
Married filing jointly income (MAGI) limit Less than $145,000 – eligible for the full amount
$145,000-$175,000 – partial credit

This deduction is “above the line,” which means you subtract it from your taxable income. You can claim it even if you take the standard deduction. But, you can’t take the student loan interest deduction if:

  • Your filing status is married filing separately
  • Someone claims you as a dependent
  • You’re not legally obligated to repay the loan

12. Higher education costs (for yourself or children)

If you’re paying for college for yourself or your children, you may be eligible for either the American opportunity tax credit (AOTC) or the lifetime learning credit. 

The American opportunity tax credit is worth more but has stricter rules for qualification. If you qualify, you can claim a $2,500 tax credit. The full credit is available if your modified adjusted gross income (MAGI) is $80,000 or less for single filers or $160,000 or less for joint filers.

If your MAGI is between $80,000-$90,000 ($180,000 for joint filers), you can get a partial credit. Taxpayers can use the American opportunity tax credit for:

  • Undergraduate education 
  • A maximum of four years 
  • Independent students
  • Parents claiming dependent students

You can claim up to 20% of the first $10,000 you pay in tuition and fees when you claim the lifetime learning credit. It’s available for undergraduate, graduate, or vocational credits. There’s also no limit on how many years you can claim it. 

However, you can’t claim both credits in the same year. You can claim the lifetime learning credit if your MAGI is less than $59,000 ($118,000 for joint filers). If your MAGI was over $59,000 but under $69,000 ($138,000 for joint filers), you can get partial credit. 

Here’s a comparison of credit amounts and income limits to decide which will reduce your taxes the most.

  American opportunity tax credit Lifetime learning credit
Maximum credit amount Up to $2,500 credit per eligible student Up to $2,000 credit per return
Single, head of household income (MAGI) limit  Full amount – $80,000 or less to claim the full amount
Over $80,000 and under $90,000 for partial credit
$80,000 or less to claim the full amount
Over $80,000 and under $90,000 for partial credit
Married filing jointly income (MAGI) limit $160,000 or less to claim the full amount
Over $160,000 and under $180,000 for partial credit
$160,000 or less to claim the full amount
Over $160,000 and under $180,000 for partial credit

How to pay less taxes with Xendoo

Xendoo’s experienced, licensed CPAs and tax professionals do more than file your taxes for you. Unlike some other bookkeeping and business tax services that outsource tax preparation and filing, we do it all in-house. We assess your unique tax situation and identify all the ways that you can lower your taxable income and pay less in taxes. Reach out today for a consultation. 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

business tax credits

Business Tax Credits to Lower Your Tax Bill

Minimizing your company’s tax burden can help maximize profits. One way of doing this is through business tax credits. Leveraging the right tax credits can save your business thousands of dollars in taxes each year. 

However, there are many types of business tax credits and the IRS has strict eligibility requirements. How do you know which tax credits will save you the most money? An experienced tax professional can identify which credits you’re eligible for and even file them for you. 

This guide goes over business tax credits that could save you money on taxes. You’ll also learn how to maximize their impact with the help of an experienced CPA or tax accountant. 

Small Business Tax Credits vs. Deductions

Small business tax credits and deductions are valuable tools for reducing your tax bill. They are incentives the government offers to reduce the amount of taxes you owe. However, they work in different ways. 

Tax Credits

Unlike deductions, tax credits directly reduce the amount of taxes you owe instead of lowering your taxable income. If you’re eligible, you can lower the amount of taxes you owe dollar-for-dollar. 

For example, let’s say you owe $1,500, but you have a credit worth $500. You could deduct the credit amount ($500) from what you owe ($1,500). Then, your total amount would be $1,000. 

Tax credits can range from investing in research and development to hiring new employees. 

For example, the Work Opportunity Tax Credit rewards small businesses for hiring individuals that meet certain criteria. Knowing which tax credits are available to you and how to use them can significantly impact your business finances.

Tax Deductions

Deductions can move you to a lower tax bracket, so the IRS taxes you at a lower rate. Examples of tax deductions include business expenses like office supplies, equipment, and travel costs.

Deductions can also be tricky as there are different rules for claiming them, and not all expenses are tax deductible. If you’re unsure which small business tax deductions you may qualify for, consult a tax professional.

11 Small Business Tax Credits

The IRS has specific eligibility requirements for each tax credit. To maximize your tax savings, here are 11 of the top tax credits for businesses and how to use them.

1. Work Opportunity Credit (Form 5884)

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and employ individuals from certain targeted groups. The IRS bases this credit on the employee category, how much you’ve paid them during the first year of employment, and how many hours they’ve worked. 

To qualify, you must hire an eligible worker in one of these categories: 

  • Unemployed veterans
  • Ex-felons
  • Temporary Assistance for Needy Families (TANF) recipients
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Designated community residents
  • Vocational rehabilitation referrals
  • Long-term family assistance recipients
  • Qualified summer youth employees
  • Qualified long-term unemployed individuals

You can claim the Work Opportunity Tax Credit by completing Form 5884 and submitting it along with your tax return.

form 5884

You must also provide information about newly-hired employees on Form 8850 within 28 days of the hire. You’ll submit this form to your state workforce agency for certification. 

In case of an IRS audit, you should maintain records for your WOTC claims for at least the last four years. Those who meet all eligibility requirements could receive up to 40% of the first $6,000 in wages ($2,400) as a tax credit.

2. R&D Credit (Form 6765)

Businesses that invest in research and development (R&D) activities might be eligible for the R&D Tax Credit. To be eligible, your business must incur expenses for developing or improving a product, process, technique, invention, or software. Qualifying expenses may include wages, supplies, and contract research fees.

Startups that have less than $5 million in annual gross receipts could apply up to $250,000 of the credit to offset payroll taxes. Since the IRS calculates the tax credit amount based on the amount a company spends on R&D, most early-stage startups don’t qualify for the full amount.  

The Inflation Reduction Act increased the maximum threshold from $250,000 to $500,000, starting with the tax year 2023.

To obtain this credit, businesses must submit Form 6765 to their federal income tax return by April 18, 2023. You must also include information about your R&D activities and expenses.   

3. Alternative Fuel and Electric Vehicle Credits

Taxpayers who purchase, lease, or install alternative fuel vehicles and infrastructure are eligible for a series of federal tax credits. The credit amounts vary depending on the type of vehicle or infrastructure you install.

  • Biodiesel and Renewable Diesel Fuels Credit (Form 8864) – Claim a credit of up to $1.00 per gallon of biodiesel, renewable diesel, and alternative fuels you purchase.
  • Alternative Fuel Vehicle Refueling Property Credit (Form 8911) – If you install an alternative fuel vehicle refueling station, you can receive up to $30,000 in tax credits.
  • Biofuel Producer Credit (Form 6478) – This credit is available to taxpayers who produce biodiesel and renewable diesel fuels. The amount varies depending on the type of fuel you produce.
  • Qualified Electric Vehicle Credit (Form 8834) – If you purchase or lease a new electric vehicle, you may be eligible for up to $7,500 in credits.

You’ll need to file the appropriate form with your federal income tax return to claim these credits. Your filing date should match the deadline for your tax return. Alternative fuel and electric vehicle credits may be subject to phase-out dates and other restrictions. It’s best to consult a professional for tax compliance and filing information.

4. Employer-Provided Childcare (Form 8882)

If your business provides childcare assistance to its employees, then you may be eligible for the Employer-Provided Childcare Credit (Form 8882). The government encourages businesses to offer childcare benefits to assist working parents. The credit can offset some of those costs.

To determine eligibility, you’ll need to calculate the cost of qualified expenses for each employee. The credit equals 25% of qualifying expenses up to $150,000. You can also claim 10% of childcare resources and referral expenses.

To claim the Employer-Provided Childcare Credit, submit Form 8882 by the tax return due date. You have up to three years to file claims for this credit. Also, you should keep childcare expense records for at least four years from the filing date.

form 8882

5. Small Employer Health Insurance Premiums (Form 8941)

To offset health insurance coverage expenses, you can use the Small Employer Health Insurance Premiums Credit (Form 8941). You must have fewer than 25 full-time employees and pay at least half the single coverage cost for each employee.

You can calculate the amount of the credit as a percentage (up to 50%) of your health insurance premiums. For non-profits, it is up to 35%. To claim the credit, you must submit Form 8941 with your federal income tax return by April 18, 2023. You will need to provide information about your health coverage and expenses.

6. Paid Family and Medical Leave Credit (Form 8994)

Your business may be eligible for the Paid Family and Medical Leave Credit (Form 8994) if it provides paid leave to employees. The credit encourages businesses to offer paid leave by offsetting the costs. 

To qualify, a business must have a written policy that provides at least four weeks of annual paid family and medical leave to full-time employees. Part-time employees should receive up to two weeks of paid leave.

You can calculate the credit as a percentage (ranging from 12.5% to 25%) of the wages you pay employees while on leave. You must provide records of wages along with Form 8994 by April 18. 2023. 

form 8894

7. Retirement Plan Startup Costs (Form 8881)

Businesses that have a qualified retirement plan are eligible for the federal Retirement Plan Startup Costs tax credit (Form 8881). It incentivizes businesses to offer retirement plans—401(k), SEP, SIMPLE IRA, and others—to employees. 

The maximum credit is 50% of qualifying startup costs with a $500 limit. If your business qualifies you could reduce your tax bill by up to $500. To qualify, a business must have 100 or fewer employees that have received at least $5,000 in compensation from you in the previous year. 

To claim the credit, submit Form 8881. The deadline to submit will vary depending on your tax filing status.

Form 8881

8. Disabled Access Credit (Form 8826)

If you’ve spent money to make your business locations accessible to individuals with disabilities, you may qualify for the federal Disabled Access Credit (Form 8826). Qualifying costs include modifying entrances, restrooms, and parking. 

To apply for the credit, your business must have earned $1 million or less and have fewer than 30 employees. The maximum credit will be 50% of the expenses, with a maximum of $5,000 per year. To receive the credit, you’ll need to submit Form 8826. 

Note, you may also be eligible for a business expense deduction of up to $15,000 too. It’s called the Architectural Barrier Removal Tax Deduction. To be eligible, you must have spent money on making your facility ADA-accessible to the elderly or disabled.

form 8826

9. Energy Efficient Home Credit (Form 8908)

The Inflation Reduction Act (IRA) brought the Energy Efficient Home Credit (Form 8908) back. If you’re a contractor that has made energy-efficient improvements to homes you sold or rental properties, you may qualify. 

The maximum credit limit for the 2022 tax year is a $500 lifetime credit. As a lifetime credit, any amount you took in previous years would count toward the total $500 limit. 

However, the IRA increased this to an annual credit of up to $1,200 for years after 2022. To qualify for this business tax credit, you must meet energy-efficient improvements. Those may include installing energy-efficient: 

  • Insulation 
  • Windows
  • Water heaters
  • Central air conditioning
  • Furnaces
  • Doors
  • Roofing

To claim this credit, you’ll need to keep records of qualified energy-efficient expenses and file Form 8908. 

10. Low-Income Housing Credit (Form 8586)

To qualify for the Low-Income Housing Credit (Form 8586), your business must develop and operate low-income residential housing. Eligible businesses must meet specific criteria set by the IRS. These include: 

  • Income restrictions
  • Rent limits
  • A commitment to maintain the property over a particular period

You base the credit amount on the qualified basis of the property, which is either 4% or 9% of the project’s gross construction costs. 

11. General Business Credit (Form 3380)

The General Business Credit (Form 3800) tallies up all applicable business tax credits. You calculate the credit as the sum of all applicable business tax credits claimed in the current year. You can carry back unused amounts for one year or carry forward 20 years.

You’ll submit Form 3800 with your federal income tax return. Your tax return deadline will depend on your filing status. When filing, provide information about all the business tax credits you’ll claim during the current year.

Lower Your Tax Bill With a CPA

With knowledge of the tax code, including business tax credits, deductions, and more, your CPA can do more than prepare your taxes. An experienced CPA can provide valuable advice on the best ways to lower your tax bill and maximize the profitability of your business.

Tax credits are powerful tools. Xendoo has a team of in-house bookkeepers, CPAs, and tax experts. You don’t just get business tax services, you get personalized financial advice. 

As tax professionals, we make it our mission to maximize your business tax savings. Schedule a free consultation and we’ll get to know your business and unique tax situation.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.


what happens if a business doesn't file taxes

What Happens if a Business Doesn’t File Taxes?

As a business owner, you probably know that you should file taxes on time. However, if you’ve fallen behind on taxes, you’re not alone. Over 33% of Americans procrastinate doing taxes until the last minute. Reasons for procrastinating taxes vary. Some find it too time-consuming and stressful, while others worry if they are filing correctly. 

No matter the reason, missing the tax filing deadline could be costly, especially for businesses. What happens if a business doesn’t file taxes by the due date? The Internal Revenue Service (IRS) can send you a bill for penalties and additional fees. However, we understand that tax filing requirements and rules change each year. It’s hard to keep up without your own accountant or business tax services

When you run a business, it’s easy to fall behind on your books and taxes. This guide will go over tax filing deadlines and what happens if your business doesn’t file taxes. We’ll also outline your options if you’re behind on your books, missed a filing deadline, or have tax payments.

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Tax Filing Deadlines for 2023

Tax day is usually April 15th. However, since that falls on a Saturday this year, the date is April 18th. Even though April 18th is tax day, filing deadlines vary. 

The date you need to file depends on the following. 

  • Your business entity – How you file depends on if you’re a C corporation, S corporation, Partnership, or LLC. 
  • The state you operate – Check with your state’s revenue department for their filing requirements and deadlines.
  • Your tax status – Tax-exempt organizations and non-profits have different filing deadlines than for-profit businesses.
  • The type of return you’re filing – Different returns, including IRS Form 1120 for corporation income tax, have different deadlines.
  • Whether you’ve requested an extension – If you’ve requested an extension and it’s accepted, you have extra time to submit your taxes. However, you must pay what you owe by the deadline.
  • Owed taxes or refunds – If you owe taxes, the deadline to pay may be different than the deadline to file your return.
  • Location – If you’re outside the United States, there are different filing requirements and deadlines.

We recommend you double-check with the IRS and your state’s revenue department for any updates to the filing requirements and deadlines. A tax accountant can also advise you on deadlines and changes.

Here’s a list of common forms and tax filing requirements for businesses and their filing deadlines. For a complete list, we’ve updated our 2023 tax deadlines for businesses here.

Tax Filing Description Who Needs To File Filing Deadline
Estimated quarterly payments By paying estimated taxes, businesses avoid owing a large amount at the end of the tax year. Businesses that expect to owe more than $1,000 in taxes at the end of the tax year pay estimated quarterly payments. Q1: April 18, 2023

Q2: June 15, 2023

Q3: September 15, 2023

Q4: January 15, 2024

W-2 A W-2 details an employee’s wages for the year as well as taxes withheld from their earnings. Employers must provide W-2 forms to all employees who received wages, salaries, tips, or other compensation during the tax year.  January 31, 2023
W-9 Non-employees and contractors fill out W-9 forms to provide tax information.  Anyone who pays an independent contractor or non-employee must file a W-9 form. Not subject to IRS deadlines but non-employees should fill it out before beginning work
1099-NEC The 1099-NEC reports nonemployee compensation payments, such as payments to independent contractors.  Any business that pays an independent contractor or nonemployee more than $600 in a year must file a 1099-NEC form.  January 31, 2023

What Happens if a Business Doesn’t File Taxes?

All corporations must submit a corporate income tax return, even with no profits. LLCs who choose to be taxed as corporations are also responsible for filing a federal tax return. This must be done regardless of whether or not an LLC conducts any business activities during the year. 

If your business doesn’t file taxes, you’re subject to IRS penalties and additional fees. It’s best to deal with tax filing issues sooner rather than later. However, if you missed a deadline, it’s not the end of the world. Initially, the IRS sends a notice or letter to notify taxpayers when they’ve missed a deadline or payment. 

Everyone’s tax situation can vary. Businesses that don’t meet the tax filing due dates have several options. An experienced tax professional can assess yours and help you meet tax requirements. 

If you’ve had IRS notices that you haven’t responded to after several months, the IRS may take these steps. 


Different penalties apply depending on your unique tax situation. Below are penalties you could face if you don’t accurately file your taxes on time or miss payments. 

  • Failure to File Penalty – if you don’t file your tax return by the due date
  • Failure to Pay Penalty – if you don’t pay the full amount of taxes you owe by the due date
  • Penalty for Underpayment of Estimated Taxes – if a business doesn’t pay enough estimated yearly taxes
  • Accuracy-Related Penalty – if the tax return is incorrect or you fail to report information correctly

In addition to penalties, the IRS charges interest on your unpaid taxes. This is in extreme cases. We’ll look at each penalty in detail, so you know how much it could affect you.

Failure to File Penalty

The IRS calculates the Failure to File penalty as a percentage of taxes that you owe each month the return is past due. The fee starts accruing on the due date and continues until you file the return or reach the maximum penalty limit.

This penalty is usually 5% of the taxes you owe for each month or partial month that you miss. The percentage increases each month until it reaches the maximum cap of 25%. If you’re more than 60 days late on submitting your return, you’ll pay either $435 or 100% of the unpaid tax balance—whichever is lower.

Don’t forget that you can request an extension if you can’t meet the tax filing deadline. The extension will give you an extra six months to file your return, but it won’t change the due date for the taxes you owe. The deadline to file for an extension is the same as the return’s original due date. 

Here’s how the Failure to File penalty works:

Months Late Penalty Amount
1 5%
2 10%
3 15%
4 20%
5+ 25%

Failure to Pay Penalty

Taxpayers who have filed taxes but didn’t pay them on time face a Failure to Pay Penalty. The IRS calculates this penalty as a percentage of the amount you owe. The penalty increases gradually each month you haven’t paid. Even if you file your taxes on time, you need to have the money to pay what you owe.

For each month you haven’t paid, the IRS assesses a penalty of 0.5% of the amount you owe. It starts accruing from the due date and continues until you pay it or it caps at 25%.

Remember, the IRS may waive penalties and interest for taxpayers who can show reasonable cause for failure to pay on time. You can request an installment agreement if you cannot pay your taxes by the deadline. With this, you make monthly payments to cover what you owe. However, there’s a fee for setting this up, and interest still accrues on anything you don’t pay.

Here’s a chart to help you visualize how the Failure to Pay penalty works:

Months Late Penalty Amount
1 0.5% of the unpaid taxes
2 1% of the unpaid taxes
3 1.5% of the unpaid taxes
4 2% of the unpaid taxes
5 2.5% of the unpaid taxes

Unpaid Taxes and Penalty Interest

The IRS may also tack on interest for any unpaid taxes or fees. Interest accumulates daily and the IRS sets it by the federal short-term rate. The IRS calculates interest from when payment was due until you pay the amount you owe. 

As of 2022, the interest rate for underpayment of taxes is 6% per year. This compounds daily, meaning it adds daily to the total amount you owe. The rate for overpayment of taxes is 5% per year. If you pay more than what you owe, you will get a lower rate of interest.

Corporations should be aware of corporate interest rates, which are higher than individual rates. 

Here’s how interest works on unpaid taxes.

Number of Years Accrued Interest
1 6%
2 12%
3 18%
4 24%
5 30%

Filing and paying your taxes within the deadlines can help you avoid costly penalties from the IRS. If you have fallen behind on filing or paying your taxes, consult with a tax professional. 

Xendoo’s tax accountants will help you file the right paperwork to prevent additional charges. We’ve seen all kinds of tax situations from missed deadlines to late taxes, so no judgment here. 

How Long Can You Go Without Filing Business Taxes?

It’s always best to file and pay your taxes as soon as possible. If this isn’t possible, a tax accountant will help you minimize your liability.

A tax professional familiar with complex tax laws and regulations can help you:

  • Apply for an extension to get a few more months of breathing room. 
  • Lower your tax bill by leveraging deductions, credits, and other strategies to reduce liability.
  • Navigate your filing obligations and comply with all applicable laws and regulations.
  • Avoid errors and omissions that could trigger an audit or penalties.

Even though you must file and pay taxes, there are ways to lower your tax bill legally. 

Tax Evasion vs. Tax Avoidance

Tax evasion is illegal and involves deliberately falsifying or concealing income, inflating deductions, or failing to file taxes. On the other hand, tax avoidance is a legitimate way of reducing your tax bill by using legal methods such as deductions and credits. 

What Happens if a Business Doesn’t File Taxes for Three Years?

If you don’t file your taxes for three consecutive years, the IRS may consider it willful neglect and impose harsher penalties.

These penalties can include levies on your wages or bank account. You may also be subject to a federal tax lien that limits your access to loans or credit. In extreme cases of intentional tax evasion, the IRS may impose fines of up to $250,000 and possible jail time.

Tax Liens

The government can take action against those who fail to pay their taxes through a tax lien. It takes assets or property the taxpayer owns and gives the government legal interest in those assets. If you continue to owe taxes, the agency might begin proceedings to seize your assets. 

Again, this is in rare cases, and usually when the IRS suspects tax evasion. 

A tax lien can make it difficult for taxpayers to sell or refinance their property. You must pay off the lien before any transactions occur. In more extreme cases, the government might foreclose on the property.

It’s important to note the difference between a tax lien and a levy. A levy is a legal process by which the government takes possession of assets or property to settle a debt. A lien serves as a legal claim on those same assets or property to secure payment of taxes. There are also different types of tax liens. 

Notice of Federal Tax Lien

The IRS uses a Notice of Federal Tax Lien (NFTL) as its initial step when taxpayers have not paid their tax debt. This document serves as public notification that the government holds a legal claim over the taxpayer’s property or assets. If you pay off the taxes or reach an installment agreement, the IRS can lift the NFTL.

Notice of State Tax Lien (NSTL)

A Notice of State Tax Lien (NSTL) is similar to an NFTL but the appropriate state agency files it instead of the IRS. The same rules apply with an NFTL—if you pay the taxes, the IRS can release the lien.

If you receive an NTFL or an NSTL, it is crucial to take action. Tax liens can devastate your financial and credit health, so you should address the issue head-on. 

What to Do if You Owe Back Taxes or Miss Filing Deadlines

Back taxes can be expensive and stressful. But, there are measures to help businesses pay off their debt. 

If you’re behind on filing or paying taxes, you have options. Here are some steps to help you avoid or lower expensive tax penalties, interest, and other fees.  

File a Tax Extension

If you need more time to collect all the documents and submit your business tax returns, you can file an extension. However, filing a tax extension doesn’t give you more time to pay the taxes that you owe. To prevent extra costs due to interest and penalties, make sure to pay by the initial due date. 

C corporations, S corporations, and partnerships must fill out Form 7004 to ask for a tax filing extension. Single-member LLCs, sole proprietorships, and trusts submit Form 4868 to request a filing extension. If the IRS approves your extension, you’ll have an additional six months to submit your tax return. 

Companies that face unexpected issues may be eligible for a hardship extension. For a hardship extension, you must submit a written request that explains why you need more time and includes the date you’ll submit the return.

Dispute a Penalty

If you believe there has been an error, you can dispute a penalty. Generally, businesses must provide evidence to support their argument and show why the IRS should remove or reduce the penalty.

For instance, if you receive a penalty for failure to file or underreporting income, you might have a reasonable cause for the oversight. Reasonable circumstances could include a fire or natural disaster or incorrect advice from a certified public accountant (CPA).

Waive a Penalty

You can also use first-time penalty abatement (FTA) to request a penalty waiver. To qualify for FTA, your business must have filed all returns and paid all taxes due within the past three years. 

An administrative waiver is another way businesses can request relief from penalty charges. 

Businesses can request an administrative waiver if they are facing financial hardship or if there’s a reasonable cause for the error.

The IRS also has a Voluntary Disclosure Program (VDP) for business taxpayers who fail to report or underreport their taxes. Businesses can come forward voluntarily and resolve their tax issues. As a result, they limit their exposure to interest and/or penalties by working with the IRS.

Reduce Payment

You can also request an Offer in Compromise (OIC), a settlement agreement between a taxpayer (you) and the government. In it, the two parties agree on a reduced tax payment. You would only be responsible for paying the new amount. However, this option should only be used as a last resort. Taxpayers must provide significant financial information to qualify.

Businesses may also consider filing for bankruptcy protection. This will stop any IRS or state tax agency collection activities while the business reorganizes its financial obligations. It may forgive taxes entirely depending on the type of bankruptcy. However, filing for bankruptcy is a complex process and has many financial consequences, so treat it as a last resort.

Setup a Payment Plan

If you can’t pay in full, you can try setting up a payment plan. To do this, file Form 9465 with the IRS by the deadline. With a payment plan, you make monthly payments toward the taxes you owe. While this won’t reduce your tax liability, it will break up the total into manageable payments.

Businesses can also apply for Currently Not Collectible (CNC) status if they cannot pay their taxes due to financial hardship. When a taxpayer has CNC status, the IRS will temporarily postpone collection actions. It will not pursue collection until the taxpayer’s financial situation improves.

Hire a Business Tax Professional

Skilled tax accountants provide expert advice on how to lower your tax bill and get more money back. They should know all the business tax deductions and credits to save you money.

When choosing a business tax professional, look for experience in business tax preparation and resolution. Xendoo’s team of CPAs, bookkeepers, and tax specialists can help you with:

  • Tax filing and preparation
  • Delinquent returns
  • Negotiating payment plans or settlements
  • Preparing documents for tax audits
  • Catch up bookkeeping when you’re behind months or years

If you’re concerned about filing taxes for your business on time, hire a tax professional. In addition to hiring a tax consultant, it’s a good idea to invest in a year-round bookkeeping service.

Like taxes, updating your books each month is important but it’s easy to fall behind. If you are behind on your taxes, chances are that you are behind on your books too. With the right help, you can get your books in order and prepare for the next tax filing season.

Xendoo has all the finance expertise a business needs in one place. You can choose from business tax services, bookkeeping, accounting, and CFO services. To learn how Xendoo can help with your particular tax situation or business finances, schedule a time to talk to an expert

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

An Amazon sellersets up her accounting reports on her computer

A Guide to Tax Savings for Consultants

An Amazon sellersets up her accounting reports on her computer

If you’re living the independent consultant life, you probably think it’s pretty sweet that you don’t have a boss over you, telling you what to do. But aside from your mini-bosses (AKA clients), you still have one more entity to which you report: The IRS. 

The IRS watches consultants closely, and every tax dollar that is owed has to be accounted for. The good news is that the money you spend on your business can often become “yours” again through tax savings.

Here are some tax-saving tips for consulting firms to minimize what they owe to the IRS at the end of the fiscal year.

Internet, Phone, & Business Utilities

Whether you work from a home office or rent a separate building that you commute to, the cash you spend on the necessities of doing business can often be deducted. 

Keep track of your basic operational overhead, including internet costs, your cell phone minutes, electricity bills, and any other utility costs that come about in the normal course of business.

Don’t forget about the software you use. If you have any subscriptions for programs like Microsoft Office or Adobe Suite, they might just be deductible expenses. Although it can be a pain to subscribe for software instead of purchasing it outright, as far as your tax returns are concerned, they’re the gift that keeps on giving!


Perhaps you have a home office. Congrats! Working from home means your commute is simply a few steps that you can take in your slippers and robe. But is it a source of tax savings?

The IRS lets you deduct the expenses related to this space as long as it is solely used for your consulting duties. For your home office, there are two ways to write off costs for your tax return:

Actual Expense Method 

The total expenses for your office include “direct expenses” for things like supplies and repairs, as well as “indirect expenses,” which might account for portions of your utilities, mortgage, and insurance.

The Simplified Option

Take the standard rate (which is currently set at five dollars) and multiply it by the square footage of your office (as long as it’s less than 300 square feet). If you take this option, you can still write off your office supplies, too!

If you commute to a separate fixed location office, know that you can’t deduct your mileage to and from that office. You can, however, deduct any business insurance you pay, as well as rent or any utility bills.

Entertainment and Meals 

Be prepared to defend your entertainment, travel, and meal expenses to the IRS! They’ll want to ensure that these costs were truly necessary for doing business, like meeting a client at a restaurant to talk shop or taking them to a show. 

Unfortunately, you can’t deduct a meal that came with entertainment, thanks to the Tax Cuts and Jobs Act, unless the meal was a separate expense from the entertainment portion.

You can deduct 100% of your travel fees, airfare, gas, and hotels, while you can also deduct 50% of your meal costs. 

Deducting anything that could (to an outside observer) look like pure fun, rather than work is where you’re going to need impeccable accounting and bookkeeping. It would be wise to keep a journal of your travel activities should the IRS have any questions for you.

Educational Materials and Courses

Whether you’re starting your consulting career right out of school or you’re a lifelong learner, your thirst for knowledge can come with some serious tax savings. 

Education tax credits and the Lifetime Learning Credit can earn you tax breaks if you’re taking courses at a recognized institution of higher learning. If you’re paid for any seminars, lectures, conferences, or even any certifications, write those costs off, too!

Not only can education lower your taxes, but anything that could be considered to be education is most likely deductible, too! 

Your magazine subscriptions and books (related to your industry), as well as research services, allow you to stay on top of the latest developments in your field. 

As a short aside, this is the kind of thing your clients will want to see, too. Positioning yourself as an expert that keeps abreast of trends and news for your area of expertise proves you’re worth your customers’ money and time!


If you take the standard mileage deduction, it does reduce your upfront work when it comes to keeping track of vehicle-related expenses. However, you won’t be able to write off your gas, repairs, maintenance, or insurance. 

If you want to get the biggest possible tax savings, go the extra mile and track your mileage!

Let’s say you choose to keep track of work-related car use. Remember that you can’t deduct mileage to and from your house and your permanent office location, even if you’re meeting with a client. 

You can write off your mileage when you’re commuting to meet clients at other locations, as well as when you run work-related errands. Write down your odometer readings or find an app that lets you track mileage.

Office Supplies 

Look around your desk. That stapler? Those pencils and pens? The paper in the printer? Post-It Notes? Stamps? Write them off! You can also deduct printing services. 

Any consumable materials you use in the course of your work in your office, as long as they are being used for work, count as expenses you can deduct.

Marketing and Advertising 

Building your brand will require getting your name and logo in front of as many eyes as possible. Your web hosting service, graphic design, and any ads you run, regardless of the medium, are deductible expenses. 

Now, if you’re savvy and able to do some of the work yourself, like photoshopping a logo or building your website, unfortunately, you can’t deduct what you would have spent for someone else to do the work for you! 

You might be able to create graphic designs worthy of tens of thousands of dollars, but unless that’s what you spent to have someone else do it, just consider it to be upfront savings, as it’s not a deduction.

Health Insurance 

As an independent consultant, you will have to pay for your own health insurance, but the good news is that it is a deductible cost. All health, dental, and vision coverage you purchase for yourself and your family can be written off. However, if you’re covered under your spouse’s plan, you can’t deduct those costs.

Client Gifts

Write off expenditures of up to $25 for any client gifts. The more clients you have, the more you can give. The more you can give, the more you can write off. 

However, if you choose to buy a client a solid rosewood dining table that costs as much as a new car — sorry, you’ll only be able to write off $25 of what you spent! 

Keep in mind that the IRS will frown on you giving multiple $25 gifts to the same client at the same time. These don’t count as separate gifts — they’ll be considered to be one lump expenditure.

Be Your Own Boss (and Spend Less Doing It)

As you try to figure out what is the best business structure for consultants, you might feel alone as you gain your footing. Know that it’s a path that many others have walked before you. The IRS will be watching you closely, but your friends at Xendoo are watching them right back! 

We help consultants every day with bookkeeping and tax preparation services. Going out on your own doesn’t mean going it all alone. Contact us today and give yourself the best start you can as you forge your path to being a successful independent consultant.

A real estate agent holds out the key for his buyer's new home.

7 Tax Tips for Independent Realtors

Editor’s Note: This post was originally published in November 2016 and has been revamped and updated for accuracy and comprehensiveness. 

As a self-employed realtor, you face some unique challenges when tax season comes knocking at your door. Since you don’t have taxes withheld from a regular paycheck, it’s up to you to lessen your tax burden by identifying all of the deductible expenses you incur throughout the year. Without careful planning, the tax bill you face when April rolls around can be quite a shock.

But here’s the good news: there’s probably more you can deduct than you realize! By carefully assessing not only your properties but your business as a whole, you can hold onto more of your hard-earned cash at tax time. The following tax tips for real estate agents are a great place to start looking for valuable deductions.

7 Tax Tips for Real Estate Agents


A real estate agent drives his car to a client meeting.

#1 – Mileage & Auto Expenses

Realtors tend to spend a lot of time behind the wheel. The miles you rack up can include getting to appointments, taking clients to see new properties, and staging homes. Don’t also forget to include car maintenance like new tires, tune-ups, and even car washes! At tax preparation time, you will need to determine whether the standard or actual cost deduction will save you the most money.

#2 – Office Space

Whether you pay desk fees under another agent or work from a home office, the IRS allows you to deduct the cost (or a percentage of) your office space. Depending on your situation, this could be a rather significant expense over the course of a year, so you don’t want to miss out on this deduction. 

It’s important to note that you won’t be able to deduct both the desk fees you pay and the space you use at home for an office. Instead, you can only deduct one or the other – whichever is greater. Keep careful records of how much you spend on any office-related rent and purchases, so you have an accurate accounting of this component when it comes time to file.

#3 – Marketing

Business cards, website maintenance, mailers – any method you use to get your name out there is deductible as a business expense. Did you have a new logo designed? Maybe you purchased a mailing list? Those are included, too. 

Unfortunately, many agents simply fail to track these kinds of costs throughout the year. The money just goes out to various vendors and services, and a (digital) paper trail is not kept up. This can be an expensive mistake. Instead, by utilizing online bookkeeping for real estate agents, you can adequately record all marketing expenses along the way, saving them in one central location for use at tax time.

#4 – Supplies & Equipment

Think of all the tools you use to run your business: a nice camera to photograph properties, your computer, lockboxes, and staging decor. Did you buy a new vacuum to clean up that “fixer-upper” you were showing? Work-related cleaning supplies are also deductible! Once you start keeping careful track of everything you purchase, you might be surprised to find how many items fall into this category over the course of a year. 

A man reads a book to help imprve his real estate selling skills.

#5 – Licenses & Fees

As a real estate agent, you are all too familiar with the various fees you pay throughout the year. Fortunately, MLS, brokerage, and legal fees — to name just a few — are all deductible. You can even deduct professional membership fees — just remember that any portion of dues designated for lobbying or political advocacy is not deductible. And don’t forget about your state license renewal.

#6 – Meals & Entertainment

Do you take clients out for lunch after a morning of showing properties? Did you meet up with a prospective business partner for happy hour? Did you cater an open house? If you discussed business before, during, or after the meal, it could be deducted on your tax return. Using the right accounting software will make it much easier to track all of these types of casual expenses throughout the year. 

#7 – Professional Development

Staying at the top of the real estate market in your area means you’re always looking for ways to expand your learning and stay on top of industry trends. Professional development events, along with any trade events, can be deducted. Also, books you purchase or publications you subscribe to can be subtracted from your revenues.

Utilizing the services available from Xendoo can help make tracking all of your business expenses a whole lot easier, so you can spend more time selling and less time worrying about next April. Get started today!


This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.


an aerial view of a beach

Sunshine Tax: Taxes for Small Business in Florida

Florida is among the most tax-friendly states in America. If you have a small or midsize business in the state of Florida, you may be shielded from many typical forms of small business taxes. But how can you know which tax laws apply to your business? This post will cover some of the more common tax questions related to taxes for small businesses in Florida.

What Types of Tax Liabilities Are There for Florida Small Businesses?

Florida business owners should be aware of the following:

  • Corporations that do business in Florida must pay a 5.5% income tax
  • Florida has a sales tax rate of 6%
  • S Corporations are exempt from paying state income tax
  • Sole proprietorships, partnerships, and most LLCs are exempt from state income tax
  • Florida residents do not pay a state income tax
  • Business owners should expect to pay federal income tax on business earnings
  • Business conducted in other states may be subject to additional state laws

Because so many businesses are exempt from Florida state income tax, many small business owners can benefit from having their business shielded from traditional tax liabilities.  Below, we’ll go into greater detail regarding the rules for taxes for different types of business entities in the state of Florida.  

What Kinds of Taxes Can an S Corporation Expect to Pay in Florida?

In Florida, S Corporations are not treated as traditional corporations when it comes to taxes. Thus, S Corporations do not pay the state’s 5.5% corporate tax. S Corporations are also exempt from federal income tax.

How is this possible? With an S Corporation, the income earned by the business goes directly to the business owners. The owners are then expected to pay federal income tax based on the income they receive from their company. However, this income is not subject to Florida state tax.

A man and a sketch out a project for their LLC business

How Are Small Business LLCs Taxed in Florida?

An LLC can be classified in one of two ways. Typically, LLCs are designated to be partnerships or disregarded entities. However, in this case, the LLC does not pay Florida income tax simply because it is not classified as a corporation.

However, some LLCs can be classified as incorporated. If they are classified as an incorporated business, the LLC must pay the standard 5.5% Florida state income tax—or at least the 3.3% alternative minimum tax. LLCs classified as corporations will file Form F-1065 if one or more of its owners is a corporation.

The actual business owner does not have to pay tax to the state of Florida for the income they personally receive from the business, except in those cases in which the LLC is incorporated.

How Are Small Business Partnerships in Florida Taxed?

Business partnerships can be classified as general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs). Regardless of these specific designations, none of these partnerships are required to pay state income tax in Florida.

However, the partners of these businesses are required to pay federal income tax on the money they receive from these businesses, based on standard income tax rates. But because Florida does not tax ordinary income, business owners of partnerships are not required to pay Florida state income tax.

A Florida business owner sits at a table with a pile of tax papers.

What Tax Obligations Are There for Sole Proprietorships in Florida?

Florida treats a sole proprietorship like a partnership. The only difference is that the state looks at the distributed income to one proprietor instead of many partners. Thus, like partnerships, sole proprietorships are shielded from traditional state income tax.

This also means that the proprietor is expected to pay tax on any business income he or she receives, though only to the federal government. Since it is considered to be personal income, the individual does not pay state income taxes.

What If You Have a Multi-State Business? How Are You Taxed?

For most organizations, there are no required taxes for small businesses in Florida. However, if you own a business in Florida but earn money from another state, you are considered to have a nexus in those states. Therefore, in these situations, your business may be subject to the tax laws in those states.

Because different states have different state tax laws, this can be confusing. If you earn money in multiple states, it may be prudent to review nexus rules to see how they may impact your business. 

Let Xendoo Help You

Looking for Florida bookkeeping services? Xendoo can help. We understand the rules regarding taxes for small businesses in Florida and help you keep your books up-to-date. We can even help with Florida tax preparation. When you have questions, contact the experts at Xendoo.


This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.


A bar owner standing in front of a POS system

Eight Tax Tips for Restaurant Owners

Editor’s Note: This post was originally published in February 2017 and has been revamped and updated for accuracy and comprehensiveness. 

You know that filing taxes can be stressful even in the best of times, but as a restaurant owner, tax time can leave you feeling in the weeds because your deductions are exponentially more complex. Never fear, though, because Xendoo is here to help. If you aren’t yet taking advantage of our full suite of professional business accounting services, here are a few quick restaurant tax tips for filing returns that can help save you some headache and money.

1. Document, Document, Document!

Did we mention that you need to document everything?  One of the best restaurant tax tips is to document and keep every invoice, every check stub, and every e-mail, no matter how inconsequential you might think it is at the time. You just never know when you might need to produce that little receipt during an audit, and running across a receipt might even remind you of something that you almost forgot to deduct. Set up a sound filing system where you can locate any tax documents you might need by vendor or category and keep it up to date.

2. Deduct All Food and Beverage Expenses

Since food cost is almost certainly your largest expense category (with the possible exception of labor), you should be deducting the cost of everything on your menu as an ordinary and necessary cost of doing business. But it’s not just the actual ingredients that you can write off. You can also deduct the cost of preparation materials like fryer oil and condiments, as well as any food that you have to throw out because it’s expired or spoiled. This is one restaurant tax tip that can take the sting out of tossing out old produce.

A restaurant staff cleans up after their shift.

3. Deduct All Employee Compensation

Payroll is your other big expense category, and it’s deductible as an ordinary and necessary expense because obviously, your business can’t operate without staff. But, again, it’s not just the weekly payroll that you get to deduct. You can also deduct the cost of any employee discounts on meals, paid vacation or sick days, and any dental, vision, health, life, or other types of insurance you might provide for your team members. However, business owners don’t generally get to count salaries or benefits to themselves as deductions because doing so would essentially make any profits from the business tax exempt.

4. Deduct Mileage and Business Travel

Do you or any of your employees drive a personal vehicle as part of the business? Are you maybe making deliveries or picking up supplies? What about to or from training events? If you have any sort of driving directly related to your business, you can deduct that at the current standard mileage rate. But be careful—this is an often-abused deduction, so your documentation of it needs to be meticulously maintained. Driving to and from work doesn’t count as a business expense. Use either a separate ledger or a smartphone app that’s designed to track mileage. Also, if you have overnight travel for training, food shows, conferences, or other business-related events, you can deduct hotel and food expenses, as well.

5. Deduct Large Equipment Purchases

Under a 2016 change to the tax code, you can now deduct the total cost of certain equipment purchases up to $500,000 for the year of purchase instead of depreciating equipment over time in the traditional manner. Known as the ‘Section 179 deduction,’ this change is meant to ease the cash flow for small businesses. It covers a wide array of equipment such as computers, office furniture, vehicles, and machinery. That means the new walk-in cooler you just bought because the old one finally bit the dust can start working for you right away.


A server pours coffee into mugs.

Photo by Tyler Nix on Unsplash

6. Take Advantage of the Work Opportunity Tax Credit

Many business owners aren’t aware that the tax code rewards employers for hiring people from certain groups that have historically had difficulty finding employment. Known as the Work Opportunity Tax Credit (WOTC), these groups might include military veterans, summer youth employees, long-term unemployment recipients, rehabilitated felons, residents of designated Empowerment Zones, and many others. This restaurant tax tip is an excellent way to save your business some money while contributing to the community through socially responsible hiring practices.

7. Make Use of Enhanced Charitable Deductions

With a handful of exceptions, the IRS allows businesses to deduct donations to §501(c)(3) nonprofit organizations just like individuals do, including some enhanced deductions specifically for restaurants donating food. Take advantage of these types of restaurant tax tips can be a little tricky, though, so you probably want to hire a small business accounting firm like Xendoo to help navigate these waters safely. You can’t deduct staff time or the total fair market value of the food, but these deductions can still help boost your profit margin significantly.

8. Track Employee Tips Meticulously

Reporting credit card tips is pretty easy since they are tracked through the POS system, but cash tips can get messy. It’s the responsibility of servers to report their tips accurately, but if they don’t report cash tips, the IRS will assume an 8% tip rule. In cash sale situations, the business owner’s responsibility is to withhold 8% of the employee’s cash sales as an assumed tip, and liability for failure to do so could land on the employer. It’s a good idea to go over these rules with your team because you also have to file a Form 8027 each year, and the IRS expects to see accurate records, so it’s in everyone’s interest to pay attention to this one.


These restaurant tax tips are a good start for any business owner, but bookkeeping for restaurants isn’t for the faint of heart, which is why Xendoo is ready to help with our affordable bookkeeping and accounting services. Instead, it would be best if you spent your time growing your business and let our team of experts lift the tax burden and do what they do best.


This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.


Two business woman smile discuss accounting at a desk

Why You Should Hire an Experienced Florida Accountant

As a small business owner, you want to keep your head in the game. After all, you started your business because you’re passionate about the work you do, and you want to connect your products and services to customers.

So why are you trying to juggle your own books?

We understand the pressures that small business owners are experiencing. Handling your own bookkeeping and accounting may seem like an easy corner to cut, but the chances are that you’ll pay for it in one way or another. 

You simply might not be able to give your books the time and attention you need—a problem that can snowball out of control and leave you with a disaster once tax season approaches. There are many online accounting services available. You can’t discount the value and simplicity that these services can offer, but how can you be confident that these services will understand your local business or Florida state law? Unfortunately, accounting software is similarly generic and can only take you so far in navigating the needs of local Florida businesses.

An experienced Florida accountant can help you with more than just the books. So let’s explore the various benefits of hiring a Florida accountant for your business.

A Florida Accountant Can Help with the Legal Structure of Your Business

On paper, businesses are largely defined by their legal structure. A business can be a limited liability company (LLC), a partnership or corporation, or a sole proprietorship. These structures are based on characteristics such as:

  • Liability
  • Taxation
  • Fees and forms
  • Investment needs and opportunities
  • Maintaining operations

When you set up your business, how will you consider these factors? This is where an experienced Florida accountant can really be helpful. Choosing an accountant can help your business to navigate these questions and ensure that your business is optimized according to Florida business law.

A Florida Accountant Can Keep Your Books and Records Up-to-Date and Accurate

Perhaps the most obvious benefit of working with a Florida accountant is that they can keep an eye on your books. Ideally, an experienced accountant will monitor your books all year long (or at least at regular intervals), which is vital when it comes to tax planning.

Two business women discuss Florida tax laws

A Florida Certified Public Accountant Can Help You to Understand Sales Tax Laws

Tax laws are notoriously complicated. Sales tax laws in Florida are no exception. Unless you have a degree in accounting, you could quickly start tearing your hair out trying to stay above board. And if you slip up, your business could face stiff penalties for violating tax laws or failing to meet deadlines for your tax returns. This doesn’t just affect you — it will also affect your staff and your loyal customers.

What about an eCommerce business? Organizations that work with out-of-state customers create a business connection called a “nexus” that requires them to pay sales taxes. An experienced accountant can help you to navigate these twenty-first-century questions and spare you the penalties that might come your way for improper financial reporting. 

This is where Xendoo can be especially helpful. Our online financial experts provide tax services to a variety of businesses, but our real advantage is our understanding of the Florida economic landscape. 

Businesses looking for bookkeeping in Naples or bookkeeping in Gainesville, for example, can take advantage of our financial expertise and local knowledge.

A Florida Accountant Can Help to Expand Your Business

Are you looking to grow your business? An accountant can help with that, too. Good accountants can distill your financial statements into a digestible summary of your overall cash flow. 

Understanding your company’s financial health can be a great first step to discovering growth opportunities. An accountant can point out ways to leverage your assets so that your business can grow and flourish without sacrificing the organizational strategies necessary for filing taxes.

When certified public accountants handle the books, you can focus on the day-to-day operation of your business.

We Handle the Books; You Handle the Business

Ready to hire an accounting professional for your small business? As you’ve seen, there are many benefits of hiring an accountant. The average base salary for a Florida accountant is over $50,000, plus benefits. Most small businesses simply can’t afford to hire someone for the position. If your company needs bookkeeping services in Orlando, where can you turn?

This is where Xendoo truly shines. With our localized knowledge, we can provide expert  Tampa bookkeeping services as well as almost anywhere in Florida. You won’t have to pay a full-time professional or contract with expensive accounting firms.

Businesses grow when they are well-managed, and an accountant can handle the books while you run the business. When you’re ready to stop juggling the books and get back in business, contact us and see how our online services can help your business to thrive.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.


A woman stress bites a pencil going over her Florida business taxes

How to File a Business Tax Extension in Florida

With so many day-to-day responsibilities that go into running a small business, such as inventory accounting, staffing, bookkeeping, and marketing, it can be easy to forget about the tax deadline. Yet, before you know it, their tax deadline came and went. 

Without a filed return, you may be wringing your hands and asking yourself questions on what to do next. Can you even make payments after a down year? Do you have the necessary paperwork? What do you do now that they’ve missed their deadline? Chances are that you are not alone, but don’t panic. Florida allows businesses to file a tax extension, but you can’t wait too long. Putting it off even further could increase your penalties and put you in financial hardship.

We’ll walk you through the process for filing a Florida business tax extension, so you can keep your business moving without the added stress. 

What is the Deadline for the Florida Business Tax Extension?

Different deadlines apply for federal and state taxes. Below are the deadlines for Florida’s state tax extension and the federal tax extension. 

State Tax Extension

Tax returns for Florida businesses are due by May 1 (the 1st day of the 4th month following the end of the taxable year). However, Florida allows for a six-month extension, which would move the new deadline to November 1st.

Federal Tax Extension

2021 tax deadlines have the following due dates:

  • Sole proprietorships and single-owner LLCs: May 17, 2021
  • Partnerships: March 15, 2021
  • S Corporations: March 15, 2021
  • C Corporations: April 15, 2021 

A Florida partnership or business has the option to file for a six-month extension, which would move the deadline to the following dates:

  • Sole proprietorships and single-owner LLCs: November 17, 2021
  • Partnerships: September 15, 2021
  • S Corporations: September 15, 2021
  • C Corporations: October 15, 2021 

Be prepared to pay a deposit for the taxes you owe. You will also be expected to pay your first quarterly taxes for your business on this date.

Image of tax forems 1120 on a desk next to a laptop bag

What Forms Do I Need to File to Apply for a Florida Business Tax Extension?

The form you need will depend on the type of business you’re operating. For the Florida business tax extension, you will first need to complete the form for a federal tax extension:

Please note that if you are filing for a federal tax extension, you must also file for an extension with the state of Florida. However, an approved federal extension will not guarantee an extension with the state.

Can I Pay My Balance When I Submit an Extension?

Businesses will have the option to pay their balance when they file for an extension, but all businesses should be prepared to pay at least a down payment for the taxes that they owe.

How Do I Submit My Forms?

It’s faster and easier to file electronically. Form 7004 can either be submitted electronically to the Florida Department of Revenue through Florida’s “File and Pay” e-service system or through the postal service by mailing your completed form to the following address:

Florida Department of Revenue

5050 W. Tennessee Street

Tallahassee, FL 32399-0135

You do not have to send payment with your tax form, but you should be prepared to pay a deposit, as we already noted. Moreover, you should also account for possible late charges or penalties.

Can I File My Extension Electronically?

You may file Form 7004 through Florida’s “File and Pay” e-service system. Most tax preparation software can interface with this system, though if you have trouble, you may wish to contact your software provider or consider filing on paper.

What Happens if I Don’t Pay My Taxes?

If you pay your taxes late, charges will apply in the amount of 10% of your unpaid taxes. An additional 10% will accrue every month in which your taxes are unpaid, up to a possible penalty of 50% of your total outstanding taxes. Underpaying your taxes could also result in interest being applied, though this number varies.

If you don’t owe Florida taxes, you must still file for this fiscal year. Failing to do so can result in a late charge of $50 per month, up to a possible total of $300.

Can Xendoo Help with My Florida Business Tax Extension?

Our bookkeepers and tax specialists are well versed in Florida small businesses and can ensure that your taxes are filed correctly and on time. Plus, Xendoo’s financial experts can keep your records up to date and accurate, so you aren’t panicking but prepared when tax season comes around. If you’re looking for bookkeeping services in Orlando and the surrounding areas, Xendoo can help you to complete forms, meet deadlines, and more. 

Xendoo offers tax and bookkeeping services all over Florida, including:

When you need help, we’re only a click away. Reach out to our team today!


This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

a group of people around a table

How to Change from an LLC to an S Corporation

Remember back when you had to decide on a name to register your new business, forming a limited liability company—LLC? Now your small business has grown up thanks to your hard work and dedication. You may have outgrown your current legal status and it’s time to change from an LLC to S Corp to gain additional tax benefits that you’ve earned! Since determining the status of your business is important to its success and potential, we’ll break it down for you.

What is an S Corporation?

Under “S” corporation status, the small business owner’s income, losses, deductions, and credits “flow through” to you and are reported on your personal tax returns and assessed at your individual income tax rate. S Corp status is great for small businesses because you have the LLC protection from losses beyond your capital investments, while still providing you with the flow-through taxation.

How is an LLC Different from an S Corporation?

As an LLC owner, you could lose everything you have invested in the business, but your personal home, bank account, and other assets are protected. The main differences between an LLC and an S Corp are:

  • An S Corporation isn’t a business entity like an LLC—it’s an elected tax status.
  • LLC owners must pay self-employment taxes for all income. S corp owners may pay less on this tax, provided they pay themselves a “reasonable salary.”
  • LLCs can have an unlimited number of members, while S Corps are limited to 100 shareholders.

A small business team discusses changing from an LLC to an S Corp

Why you should consider changing from an LLC to an S Corp

Here are three great reasons to change from an LLC to an S Corp:

Self-employment taxes

S Corp distributions aren’t subject to FICA/self-employment taxes. This is one strategic way to minimize self-employment taxes, making it a great business structure for consultants, sole-proprietors, and more. If you have an S-Corporation and are active in the business, you must pay yourself a market-rate salary for your work The IRS won’t let you pay yourself entirely in distributions to avoid self-employment tax.

Tax-preferred retirement savings 

You can contribute more to retirement accounts with an S Corp than an LLC because with an S Corp you can set up a Solo 401(k) in addition to a Roth IRA.

Easier to scale

S Corps allows for a smoother transition from a C Corp. Stockholders are required to report their percentage of the profit/loss whether or not they actually receive that money as a distribution. If you own 100 percent of an S Corp and it makes X dollars in profit, you can keep that money in the business to make purchases next year. You are still required to report the profit on your individual tax return. If you anticipate keeping a significant amount of money in the business, you may be better off as a C Corporation.

How do I change from an LLC to an S Corporation?

If you decide to change from an LLC to an S Corp for federal tax purposes, you can simply make an election for the LLC to be taxed as an S Corporation. All you need to do is fill out a form and send it to the IRS. Once the LLC is classified for federal tax purposes as a Corporation, it can file Form 2553 to be taxed as an S Corporation.

With this approach, you don’t change the actual entity type, only the federal tax classification. Even though the IRS classifies the LLC as S Corp, it is still an LLC and may be taxed as such by the state where it is formed.

To change the actual entity structure you must formally change the LLC to an S Corporation with the formation state. If the simple conversion process is not allowed by the formation state, then you can do the following: 

  • send the IRS a letter informing them of the structural change
  • choose to be an S Corporation by filling out IRS Form 2553
  • cancel the LLC while filing with the state for a new corporation

Is Switching from LLC to an S corp right for my business?

When you’re ready to change from an LLC to S Corp, we recommend that you consult an accountant or tax preparation services to make sure there are no mistakes that could cause you to lose your money-saving tax status. Your Xendoo team of small business accounting experts can help you find the right solutions for your small business, and take the hassles of tax prep and filing off your shoulders. Whether it’s the 1120S,  1120, or 1065,  Xendoo’s CPAs will file the right return for you, right on time.

With bookkeeping, tax consulting, and tax filing all under one roof, your U.S.-based Xendoo financial team is here to answer all your questions and to file your business and personal taxes. We’ll do what we do best — and let you get back to doing what you do best to make your business a success. Sign up today.

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.