You know what’s more predictable than tax season? The IRS changing the rules right when you figure them out.
For years, savvy entrepreneurs have used legal tax strategies—like S Corporations, business deductions, and contractor-friendly hiring structures—to reduce their liability. But if you’re relying on the same tax-saving tricks year after year, you might be in for a surprise. The IRS and policymakers are tightening the rules, and some of the most common tax advantages for business owners may not be around much longer.
That doesn’t mean you’re out of options—it means you need a plan. Because the entrepreneurs who treat taxes like a strategy game, not a once-a-year scramble, will always come out ahead.
The S corp advantage: Is the IRS cracking down?
For small business owners making at least $75K–$100K in net profit, electing S Corporation (S Corp) status has long been a smart tax move. Instead of paying self-employment tax on your entire earnings like an LLC, S Corp owners pay themselves a “reasonable salary” and take the rest as distributions—free of self-employment tax.
But guess what? The IRS is paying attention.
One of the biggest issues? What’s a “reasonable salary”? If you take a $30K salary while pulling $300K in tax-free distributions, the IRS might have some questions. Some policymakers are pushing to tighten the rules, forcing more of your income into taxable wages.
What’s the move?
If you’re an S Corp owner, now is the time to review your salary structure and make sure it aligns with industry standards. And if the tax laws shift, you want to be working with a CPA who can pivot your strategy—before your tax bill catches you off guard.
Are your favorite write-offs under fire?
Business deductions have always been an entrepreneur’s best friend, but with increased IRS scrutiny, some tax breaks are getting more attention than others.
Here are three deductions the IRS is keeping a close eye on:
- Home Office Deduction – If your “home office” doubles as a guest room or storage space, the IRS may challenge your claim. The space must be exclusively used for business.
- Business Meals & Travel – The IRS is tightening up on meal deductions. That “working lunch” at a steakhouse? If you don’t have clear documentation on who you met with and why, you could be in trouble.
- Education & Training Expenses – Online courses, coaching programs, and business books might be deductible—but only if they directly relate to improving your business. If it’s personal development disguised as a business expense, you could be flagged.
What’s the move?
If you claim deductions, document everything. Keep digital copies of receipts, categorize expenses correctly, and track business use. A well-documented deduction is still a legal deduction, but vague records invite IRS scrutiny.
The 1099 economy: Are you misclassifying contractors?
Hiring freelancers and contractors is how many small businesses scale without the burden of full-time payroll costs. But here’s the catch: If you misclassify a worker as a contractor when they should be an employee, the IRS could come knocking.
The IRS and Department of Labor are cracking down on independent contractor classification, and some states (hello, California) are already enforcing stricter rules. If your contractors:
- Work exclusively for you
- Follow a set schedule you control
- Use your tools and resources
...they may legally be employees, even if you both prefer a 1099 setup. And if the IRS disagrees with your classification, you could owe back taxes, penalties, and benefits.
What’s the move?
If you use contractors, do a classification check now. The IRS uses an economic reality test to determine if someone is genuinely self-employed. Don’t wait for an audit to find out you got it wrong.
How to stay ahead of the tax game
Tax strategy isn’t about dodging taxes—it’s about playing offense instead of scrambling in April. Here’s how:
- Work With a CPA Who Does More Than Just File
Tax software is great, but it won’t build a tax strategy. If you’re scaling a business, you need tax planning, not just compliance.
- Rethink Your Business Structure
If the IRS changes S Corp rules, you might need a Plan B. Should you switch to a C Corp? Restructure ownership? Adjust your salary strategy? Know your options before you need them.
- Keep Impeccable Records
The best audit defense? Flawless documentation. If you’re writing off business expenses, track them properly and ensure they’re legitimate.
- Be Proactive, Not Reactive
Don’t wait for tax law changes to hit. Review your tax strategy now and get ahead before the IRS updates its playbook. Because the rules will always change in the tax game. The question is—will you be ready?
If you’re ready to stop dodging tax code changes and build a financial strategy for long-term results,
schedule an introductory call with us today.
