10 Tax-Saving Strategies for Small Business Owners Before Year-End

Sim”pol”fied Tax Thursday:

As a small business owner, managing your tax liability is crucial to maximizing profits and reducing unnecessary expenses. Here are 10 effective strategies to consider implementing before the end of 2024:

1. Maximize Retirement Contributions

Small business owners can benefit from contributing to retirement accounts like a Solo 401(k) or SEP IRA. Not only do these contributions reduce taxable income, but they also help secure your future. Max out both employee and employer contributions, taking advantage of the IRS limits for the year.

2. Take Advantage of the Qualified Business Income Deduction (QBID)

The Qualified Business Income Deduction (QBID) allows eligible businesses to deduct up to 20% of qualified business income. By reviewing your salary and business profit structure, you can potentially optimize QBID by balancing W-2 wages and other business income elements.

3. Review and Clean Up Your Books

Ensure your bookkeeping is accurate and up-to-date before the year-end rush. This includes reviewing income and expenses, categorizing transactions correctly, and reconciling all accounts. Clean, organized books make tax filing smoother and help you catch any additional deductions.

4. Consider State-Level Pass-Through Entity Tax (PTET)

If your state offers a Pass-Through Entity Tax (PTET), consider paying state taxes through the business. This allows for a deduction at the federal level, potentially lowering your taxable income.

5. Accelerate Expenses and Defer Income

If you operate on a cash-basis accounting system, you might consider accelerating deductible expenses or deferring income into the next tax year. Prepay expenses like rent, utilities, or office supplies now to reduce your taxable income for 2024.

6. Donate to Charity

Charitable contributions can offer meaningful tax deductions. Consider donating cash or appreciated assets, such as stocks, which may allow you to avoid capital gains taxes. Bunching donations into a single tax year or setting up a donor-advised fund can also maximize the deduction.

7. Utilize a Cost Segregation Study for Investment Properties

If you own investment properties, a cost segregation study allows you to identify and accelerate the depreciation on certain property components. This year, the bonus depreciation rate remains at 80%, providing a valuable opportunity to increase deductions.

8. Prepay Property Taxes to Maximize Deductions

If married, consider prepaying property taxes to maximize the $10,000 deduction limit for state and local taxes (SALT). This can be particularly beneficial if your SALT deductions are close to the cap, helping you secure the full benefit.

9. Distribute Year-End Bonuses

If your business has employees or contractors, paying year-end bonuses can reduce your taxable income for 2024. This not only helps you with tax savings but can also serve as an employee retention strategy by rewarding their hard work.

10. Contribute to an HSA and FSA

If you have a High Deductible Health Plan, maximizing Health Savings Account (HSA) contributions is a great tax-saving strategy. Likewise, ensure you’re fully utilizing any remaining balance in your Flexible Spending Account (FSA), as these accounts often have a “use it or lose it” policy.

Start Planning Early for Future Savings

While these year-end tax moves are beneficial, remember that tax planning is most effective when started mid-year. Begin strategizing early to avoid rushing decisions in December. Thoughtful, proactive planning can help you maximize deductions, streamline financials, and build a healthier bottom line.