As a new business owner, you’re doing everything right—or at least trying to. You set up your business to protect your personal assets. You’re hustling to grow. And like any smart entrepreneur, you want to pay less in taxes. Every dollar saved counts. 

Sound familiar? Don’t worry. You’re not alone. In this article, you’ll gain an understanding of how to structure and manage your business so you can legally reduce taxes. 

All small business owners want to save on taxes. It’s a necessary evil you just deal with. The allure of saving every penny from the tax man seems like a complete mystery. Here’s the truth: the smartest tax-saving strategies aren’t flashy. They’re consistent.

You start by claiming every eligible business expense—office rent, supplies, insurance premiums, utilities, marketing, legal fees. And you document them like your loan approval depends on it—because in some ways, it does. If you work from home, the home office deduction can also put money back in your pocket by letting you write off a portion of your housing expenses.

If you own a pass-through entity, the Qualified Business Income (QBI) deduction can reduce your taxable income by up to 20%—a major win. Max out your contributions to tax-deferred retirement plans like a SEP IRA or Solo 401(k), and remember that health insurance and other employee benefits can also be deducted. Even start-up costs, R&D expenses, and hiring incentives like the Work Opportunity Tax Credit can make a real dent in your tax bill.

When you use these strategies, you don’t just reduce your tax liability—you free up cash flow to reinvest in your growth. The Problem? These strategies often lower your net profit on paper, making you look broke to lenders.

Your business structure does more than determine your tax bill. It tells a story to lenders, investors, and partners. You’ve likely heard that forming an LLC or corporation is the way to go. These structures offer limited liability protection, which separates your personal assets from your business liabilities. They also provide flexible tax treatment. For example, LLCs can elect to be taxed as a sole proprietorship, partnership, S corporation, or C corporation.

Sole proprietorships are easy to launch but offer zero liability protection. Every dollar you make flows onto your personal tax return, and there’s no room for self-employment tax optimization.

An LLC adds a protective layer between your business and personal life. You can choose how it's taxed and access more deductions. But it comes with California’s $800 annual franchise tax and higher compliance obligations.

A C corporation, meanwhile, pays its own corporate taxes and can carry forward losses to future years. But it isn't eligible for the QBI deduction or the PTE tax and may face double taxation if profits are distributed as dividends.

No matter your structure, formal entities in California are subject to the $800 annual franchise tax. While that’s a fixed cost, it’s often worth it for the tax planning advantages and asset protection.

The catch? All the tactics used to reduce your reported net profit are huge red flags when applying for financing. So what gives?

Let’s get clear on something: your tax return isn’t just for the IRS. It’s also a financial "marketing document". When lenders review it, they’re trying to answer one question—can you repay the money?

They look for signs of consistent profitability. If you’re always showing losses, it doesn’t matter how savvy your deductions are. They want to see that your business earns money and manages it well. Profit drives cash flow. Cash flow pays back debt.

Sure, lenders add back certain deductions like depreciation or amortization. But most of your write-offs don’t make the cut. If your net income is too low, you’ll look risky, even if your bank account tells a different story.

They’ll also look at whether you have any unpaid taxes or tax liens. For SBA loans, unresolved tax debt is often an automatic disqualifier. If your business shows repeated losses year after year, that raises another major red flag

If you go too far with tax savings, you risk looking unprofitable. That’s a deal-breaker for lenders. You need a strategy that balances tax minimization with presenting your business as creditworthy.

Think of your financial profile like a teeter-totter. On one side, you want to lower your tax bill. On the other side, you want to look profitable enough to borrow money.

Instead, aim for strategic profitability—not zero profit, but a healthy, credible bottom line. This might mean deferring some expenses or accelerating income. Yes, you’ll owe a bit more in taxes. But you’ll be in a stronger position when you need a loan to grow your business.

You also need to bring your CPA into the conversation early. Don’t just ask how to lower your tax bill. Let them know your goals. Are you planning to apply for financing in the next year? Trying to qualify for an SBA loan? They can help you craft a tax strategy that serves both purposes.

And when it’s time to apply, be ready to explain your numbers. A well-prepared financial narrative can be the difference between approval and rejection.

If you want financing in the near future, your planning needs to start now—not after you file your taxes.

1. Start by avoiding aggressive write-offs that drive your profit into the red. Instead, aim for moderate and consistent profits year-over-year. 

2. Make sure all your tax obligations are current, and resolve any outstanding debts well before applying.

3. Keep detailed records of how you’ll use loan funds and how they’ll help you grow. Lenders love a clear plan. It shows you’re not just borrowing—you’re investing in long-term success.

4. And most importantly, work with a tax advisor or CPA who understands the bigger picture. They can help you plan the right moves before the year ends, not after.

You don’t have to choose between saving money on taxes and qualifying for a business loan. You can do both—but only if you plan ahead. The right business structure gives you flexibility. A smart tax strategy gives you savings. But showing the right profit on paper? That gives you leverage.

Talk to a CPA who gets the full picture. Explain your growth plans. Together, you can build a strategy that protects your wallet, your business, and your future funding potential. Because when tax season rolls around, your numbers shouldn’t just satisfy the IRS. They should set you up to thrive.