How to legally minimize tax liability for my small business?

There's a big difference between tax avoidance (legal) and tax evasion (illegal). What you're describing is actually a common strategy, but there are important nuances you need to understand. Yes, legitimate business expenses reduce your taxable income. Investing in equipment, inventory, marketing, etc. are all valid expenses. However, the IRS isn't fooled by artificial expenses created just to avoid taxes. Those expenses need to be "ordinary and necessary" for your business. As for paying yourself, it depends on your business structure. If you're a sole proprietor, you can't technically pay yourself a "salary" as a deduction - you're just taking an owner's draw from profits (which isn't deductible). If you're an S-Corp or C-Corp, you can pay yourself a reasonable salary which is indeed a business expense, but you must pay payroll taxes on it. The key word is "reasonable" - the IRS will flag compensation that's artificially high just to avoid taxes.

When I was struggling with similar tax questions for my e-commerce business, I found this tool called taxr.ai (https://taxr.ai) that was super helpful. It analyzed my business structure and expenses, then showed me legitimate ways to minimize my tax burden. They have this feature where you can upload your financial docs and it identifies potential deductions you might be missing. What I really liked was how it explained which business investments actually count as legitimate expenses versus what might trigger an audit. It helped me understand how to properly categorize different types of investments back into my business.

Just wanted to follow up about taxr.ai since I decided to try it after asking about it here. It was actually really helpful for my consulting business! It identified several business expenses I could legitimately deduct that I had been missing, especially around my home office and technology costs. The part I found most valuable was how it explained the difference between business growth investments (deductible) versus capital improvements (which need to be depreciated). Saved me from incorrectly categorizing about $12,000 in expenses that could have raised red flags. Definitely worth checking out if you're trying to legally minimize your tax burden while staying 100% compliant.

If you're having trouble getting answers from the IRS about what expenses are legitimate for your specific business situation, I recommend Claimyr (https://claimyr.com). I spent WEEKS trying to get through to an IRS agent for clarification on business expense rules. After waiting on hold for hours multiple times, I found this service that got me connected to an actual IRS representative in under 45 minutes. They have this demo video (https://youtu.be/_kiP6q8DX5c) that shows exactly how it works. Basically, they wait on hold for you and call when an agent is available. The agent was able to clarify exactly what documentation I needed to keep for my business investments to justify them as legitimate expenses.

I was super skeptical about Claimyr (that hold-waiting service mentioned above), but I was desperate after trying for THREE DAYS to reach someone at the IRS about my business expense questions. So I tried it, fully expecting to waste my money. I was shocked when they actually called me about 35 minutes later with an IRS agent on the line! The agent walked me through exactly what counts as legitimate business reinvestment versus what they consider trying to artificially reduce taxable income. Basically confirmed that strategic reinvestment is fine but you need proper documentation and business purpose. Saved me hours of frustration and possibly an audit down the road.

Just a heads up - what you're describing sounds like you want to avoid showing any profit year after year. This is a HUGE red flag to the IRS. Businesses are supposed to make profit eventually - if you never show profit, the IRS might reclassify your business as a hobby, which means you lose a ton of deductions. Look up the "hobby loss rule" - basically if you don't show profit in 3 out of 5 consecutive years, you risk being classified as a hobby, not a business. Then you'd lose all those business deductions.

random person with small business here! i was doing what ur talking about for 2 years - kept reinvesting every dollar back into my business and thought i was being smart with "zero profit" on paper. guess what happened? audit!!! 😭 turns out some of my "business expenses" weren't legit business needs (like that fancy laptop that was way more than necessary). they reclassified like $7k as personal expenses and hit me with back taxes + penalties. not worth the stress!!! now i just plan for reasonable profit + taxes instead of trying to game the system.