The 10 Most Overlooked Tax Strategies by Small Firms (and How to Automate Them)

In the fast-paced world of small business, it's easy to overlook tax strategies that could significantly reduce liabilities and enhance profitability. Many small firms miss out on valuable deductions and credits simply because they aren't aware of them or lack the tools to implement them efficiently. This guide highlights the 10 most overlooked tax strategies by small firms and demonstrates how automation can simplify their application, saving time and money.

Jump to a Strategy:

1. Maximizing the Qualified Business Income (QBI) Deduction
   
   
2. Utilizing the Augusta Rule
   
   
3. Implementing S-Corporation Election
   
   
4. Deducting Home Office Expenses
   
   
5. Leveraging Retirement Plans
   
   
6. Claiming the Research and Development (R&D) Tax Credit
   
   
7. Hiring Family Members
   
   
8. Utilizing Section 179 Deduction
   
   
9. Tracking Vehicle Expenses
   
   
10. Applying for Energy Efficiency Credits

1. Maximizing the Qualified Business Income (QBI) Deduction

The QBI deduction, introduced by the Tax Cuts and Jobs Act, allows eligible businesses to deduct up to 20% of their qualified business income. However, the rules surrounding QBI are complex and often misunderstood. Factors like total taxable income, the type of trade or business, and W-2 wage and property limitations can all influence eligibility. These nuances make the deduction particularly challenging for small firms, especially those operating in specified service trades such as accounting, legal services, and consulting.

Many small firms either underutilize the deduction or fail to claim it entirely due to uncertainty about eligibility or concern over misapplying the rule. Automated tax planning software can analyze a client’s specific circumstances, highlight where they fall within the thresholds, and flag opportunities to adjust income or expenses to remain eligible. For instance, if a client’s income exceeds the phase-out threshold, automation tools can suggest strategic retirement contributions or charitable donations to bring income back within a favorable range.

TaxPlanIQ provides a scenario modeling feature, allowing tax professionals to forecast the effect of various strategies on QBI eligibility. This helps eliminate guesswork and supports well-informed decisions. Clients appreciate the ability to see the tax impact in clear, visual reports, and professionals benefit from having a defensible, transparent method for presenting their recommendations.

2. Utilizing the Augusta Rule

The Augusta Rule, derived from Section 280A(g) of the Internal Revenue Code, allows homeowners to rent their personal residence to their business for up to 14 days per year, excluding the rental income from taxable income. While this may seem like a minor detail, it presents a powerful opportunity to generate tax-free income and create a deductible business expense.

This strategy is often underused because it requires thoughtful planning and diligent documentation. Business owners must establish a fair rental rate, document the purpose of the meeting or event hosted in the home, and ensure the business purpose is legitimate. These administrative details may seem burdensome, but automation can turn a once-cumbersome process into a streamlined, audit-proof system.

TaxPlanIQ includes the Augusta Rule as a recommended strategy when applicable and offers ready-to-use templates for rental agreements, invoice creation, and market-rate analysis. This not only ensures compliance with IRS guidelines but also helps clients clearly understand and trust the legitimacy of the strategy. Advisors using TaxPlanIQ can walk clients through the process and instantly show projected savings, making an otherwise obscure provision a valuable tax planning opportunity.

Additionally, this strategy provides a conversation starter with clients who may not have considered personal-home-business interactions as a tax-saving method. The result is often a deeper relationship and more advisory opportunities that grow the firm’s value over time.

3. Implementing S-Corporation Election

S-Corporation election is a strategic move that allows business owners to reduce their self-employment tax burden. By electing S-Corp status, the business owner can split their income between salary and distributions. The salary portion is subject to payroll taxes, while the distribution portion is not—creating a significant savings opportunity.

Despite its benefits, this strategy requires precision. The IRS mandates that S-Corp shareholders pay themselves a "reasonable salary," which can be subject to scrutiny if deemed too low. Additionally, firms must file IRS Form 2553 in a timely manner and maintain separate accounting records to meet legal requirements. The fear of triggering an audit, combined with the administrative burden, leads many small firms to avoid this election altogether.

Automation helps reduce that friction. TaxPlanIQ includes an S-Corp tax strategy that evaluates the client’s net income, recommends a reasonable salary based on industry standards, and projects potential tax savings. It even includes court case references that help justify the approach. The result is a more confident, compliant strategy that makes S-Corp election accessible for small business clients—turning a commonly missed opportunity into a recurring source of savings and value.

This strategy also opens the door to additional planning areas, such as accountable plans, fringe benefit structuring, and retirement contribution optimization. Firms that regularly advise on S-Corp structures can build ongoing advisory revenue streams while enhancing client retention.

4. Deducting Home Office Expenses

Many small business owners work from home but fail to deduct home office expenses due to fear of audit or confusion over eligibility. To qualify, the space must be used exclusively and regularly for business, and it must be the principal place of business. When those criteria are met, a portion of home-related expenses—like mortgage interest, utilities, internet, and property taxes—can be deducted, either through the simplified method or actual expense method.

What often deters small firms is the documentation burden and fear of triggering an audit. Yet the savings can be substantial, especially when layered into broader planning strategies. Automation tools make it easier to track, calculate, and apply the appropriate deductions. Platforms like TaxPlanIQ can recommend the best method based on client profiles and provide detailed documentation templates to support the deduction.

Clients also appreciate transparency, and showing them how their tax liability is affected by including a properly documented home office deduction builds credibility. It also offers an opportunity to educate clients on additional areas where proper record-keeping can lead to lower taxes and higher long-term value.

5. Leveraging Retirement Plans

Retirement plans can provide significant tax savings for small firms, yet many accountants and tax professionals don’t actively suggest or automate them. Plans like SEP IRAs, SIMPLE IRAs, and Solo 401(k)s allow business owners to reduce current taxable income while saving for the future. For example, a Solo 401(k) allows contributions as both the employee and the employer, creating opportunities to maximize savings—especially for high-income individuals.

Many firms don’t take full advantage of these plans simply because they assume retirement planning falls outside their advisory scope. However, integrating these discussions into tax strategy not only benefits clients, but also opens new service opportunities for the firm. Automating this process can make it significantly easier to model contribution levels and estimate tax savings.

TaxPlanIQ makes it simple to identify clients who could benefit from retirement planning based on income thresholds, entity structure, and current compensation. It can show contribution options side-by-side and illustrate tax savings, empowering firms to move from reactive tax prep to proactive planning. You can explore more about these workflows in our custom tax plan builder.

6. Claiming the Research and Development (R&D) Tax Credit

The R&D tax credit isn't just for tech companies with labs and patents. Many small businesses—especially those that improve products, processes, or software—qualify without realizing it. Activities like testing prototypes, developing internal tools, or streamlining operations could qualify. However, the nuanced definitions and documentation requirements often deter smaller firms from pursuing the credit.

Tax professionals can use automation to make this powerful strategy accessible and defensible. Instead of manually combing through receipts and vague descriptions, software like TaxPlanIQ helps identify qualifying activities through guided questions and pre-mapped IRS criteria. It also compiles relevant support documents and links activities to specific tax code justifications.

The R&D credit can be especially valuable for startups or firms with high payroll expenses, as it may offset payroll taxes. Adding this credit to your advisory toolkit enhances your value proposition and helps your clients reinvest in innovation.

7. Hiring Family Members

Hiring family members—especially children—can be a smart tax-saving move. When done correctly, paying a reasonable wage to a spouse or minor child allows families to shift income to lower tax brackets while still keeping the money in the household. Children under 18 employed by a parent’s sole proprietorship are not subject to Social Security or Medicare taxes, making this strategy even more attractive.

Yet many business owners avoid this tactic out of concern over employment law compliance and paperwork. Automation helps demystify this process. TaxPlanIQ offers prebuilt strategy templates that walk accountants through IRS documentation requirements and even help establish age-appropriate job descriptions.

Hiring family members can also set up opportunities for future planning. For example, wages paid to children can be contributed to a Roth IRA, building lifelong tax-free growth. When automated tools simplify the setup and documentation, this overlooked tactic becomes a cornerstone of tax-efficient family and retirement planning.

8. Utilizing Section 179 Deduction

Section 179 allows businesses to immediately deduct the full cost of qualifying property and equipment rather than depreciating it over several years. For small firms, this means they can recover their investment faster and lower taxable income in the year of purchase. Vehicles, computers, furniture, and certain software qualify—but many firms forget to track smaller purchases that collectively can have a big tax impact.

Manually identifying and calculating eligible assets can be time-consuming. With automation, these purchases are flagged, categorized, and evaluated in real-time. TaxPlanIQ lets you input asset purchases or upload reports from accounting software to automatically generate Section 179 recommendations, complete with IRS references.

Clients are often unaware of how quickly deductions like these can add up. Presenting Section 179 opportunities in a clean, visual tax plan can increase perceived value and reinforce your role as a forward-thinking advisor.

9. Tracking Vehicle Expenses

Vehicle-related deductions are another commonly missed opportunity, especially for service-based businesses and sole proprietors. The IRS allows deductions using either the standard mileage rate or actual expenses like gas, maintenance, insurance, and depreciation. Yet without a reliable system for tracking mileage or receipts, firms often skip this deduction entirely.

With automation, tracking becomes seamless. Tools like TaxPlanIQ suggest the most beneficial method based on historical use, and can integrate with mileage apps or accounting tools to pull real-time data. It can also generate logs that satisfy IRS audit requirements.

This strategy is especially useful for high-travel industries—real estate, consulting, construction—and can often be optimized further by coordinating vehicle ownership with business structure (e.g., personal vs. corporate title). Adding this strategy to your advisory playbook helps reduce client liability while demonstrating attention to detail and compliance.

10. Applying for Energy Efficiency Credits

Incentives for energy efficiency are often underused because they span both federal and state programs, each with its own eligibility rules. However, these credits can provide meaningful savings for firms investing in energy-efficient HVAC systems, lighting, or solar installations. Even home offices may qualify for residential energy credits in some cases.

Automation helps identify eligible credits early and ensures accurate documentation. TaxPlanIQ flags these opportunities based on client inputs and regional filters. It also assists in preparing supporting documentation and provides links to applicable forms or IRS publications.

Energy tax credits are not only beneficial from a cost-savings perspective—they can also enhance your client's brand by showcasing a commitment to sustainability. Including these strategies in your services can set your firm apart in a competitive market and deepen client loyalty.

Looking Ahead

The 10 most overlooked tax strategies by small firms and how to automate them highlight a clear opportunity: with the right tools, your firm can provide higher-value services without adding hours to your workload. TaxPlanIQ makes it simple to uncover, explain, and implement strategies that previously felt too complex or time-consuming.

From identifying opportunities to producing polished, client-ready deliverables, TaxPlanIQ supports accountants and CPAs every step of the way. Whether you're new to tax planning or looking to scale your advisory services, the platform empowers you to offer more and stress less. Ready to see how it works in action? Sign up for a free demo and discover how easy tax planning can be.