What Are the Tax Benefits of a Woman-Owned Business?

Many entrepreneurs search for tax advantages available to them as owners of a woman-owned business. This search reveals a landscape of federal programs, state-level incentives, and universally available tax strategies. Understanding the distinctions between these opportunities is important for financial planning and business growth.

Clarifying Federal Tax Status for Woman-Owned Businesses

A common question is whether the Internal Revenue Service (IRS) offers special tax deductions or credits for businesses because they are woman-owned. The answer is no, as federal tax law does not provide preferential treatment based on the gender of a business owner. Federal tax obligations are determined by factors like business structure, net income, and expenses, not by owner demographics; the same principle applies to partnerships, S corporations, and C corporations.

While direct federal tax breaks are not available, the government does offer financial advantages through other means. Instead of altering the tax code, the government has established programs aimed at increasing revenue opportunities for women entrepreneurs through preferential access to government contracts.

Unlocking Opportunities with Government Contracting Certifications

The primary financial advantage from the federal government comes from procurement programs. The government’s goal is to award at least 5% of all federal contracting dollars to woman-owned businesses annually. This is achieved through two certifications: the Woman-Owned Small Business (WOSB) program and the Economically Disadvantaged Woman-Owned Small Business (EDWOSB) program.

These programs use “set-asides,” which are federal contracts reserved exclusively for certified businesses. This means that for certain contracts, only eligible WOSBs or EDWOSBs can submit bids, reducing competition. In some industries where women are underrepresented, contracting officers can award sole-source contracts, eliminating the competitive bidding process.

To qualify for WOSB certification, a business must be at least 51% unconditionally and directly owned and controlled by one or more women who are U.S. citizens. This control means women must manage daily operations, hold the highest officer position, and be responsible for long-term decisions. The business must also qualify as a small business under the Small Business Administration’s (SBA) size standards.

The EDWOSB certification includes all WOSB requirements but adds economic criteria. To qualify, each woman owner must have an adjusted gross income averaged over three years of $400,000 or less and personal assets of no more than $6.5 million. Her personal net worth must also be less than $850,000, excluding her primary residence, business value, and retirement accounts.

Exploring State and Local Tax Incentives

While the federal government focuses on contracting, some state and local governments offer direct tax incentives for certified woman-owned businesses. These programs vary by jurisdiction, so owners must research the benefits available in their area. The incentives are often tied to a state-level certification, known as a Women Business Enterprise (WBE) certification.

The types of tax benefits available at the state or local level can include:

• Tax credits for corporations that hire or subcontract with certified WBEs
• Credits for job creation
• Rebates for certain business expenses
• Reduced fees for licenses and permits

To discover these opportunities, contact the agencies in your state responsible for economic development and revenue. Resources include the state’s Department of Revenue, Economic Development Corporation, or an Office of Minority and Women’s Business Enterprises. These organizations manage the certification process and provide detailed information on available tax credits and grants.

Key Tax-Saving Strategies for All Business Owners

All business owners can leverage tax-saving strategies built into the tax code. Contributing to a retirement plan is an effective way to reduce taxable income. Self-employed individuals and small business owners can establish plans like a SEP IRA, SIMPLE IRA, or a Solo 401(k), and contributions are generally tax-deductible. A SEP IRA allows you to contribute up to 25% of your compensation, with a maximum of $70,000 for 2025.

Your choice of business structure has tax implications. Many small businesses operate as pass-through entities, where profits are passed to the owner’s personal tax return. Owners of these entities may be eligible for the Qualified Business Income (QBI) deduction, which allows for a deduction of up to 20% of qualified income. This deduction is subject to income limitations and is scheduled to expire after the 2025 tax year unless extended by legislation.

Deducting health and insurance costs is another strategy. The self-employed health insurance deduction allows eligible owners to deduct 100% of premiums paid for medical, dental, and qualifying long-term care insurance for themselves and their family. This is an “above-the-line” deduction, reducing your adjusted gross income (AGI) even if you don’t itemize. To qualify, your business must have a net profit, and you cannot be eligible for an employer-sponsored health plan, such as one from a spouse’s employer.