Year End Tax Plan
As the end of the year approaches, it's the perfect time to focus on your tax strategy for 2024. With careful planning now, you can save thousands in taxes and set your business up for financial success in the new year. Let's explore some key year-end tax planning strategies, .
1. Maximize Business Deductions
One of the most effective year-end tax moves is maximizing your deductions. Consider making necessary business purchases before the year ends. Office equipment, advertising expenses, or technology upgrades that you have been postponing might be a great investment now, especially if they contribute to reducing your taxable income. Also, don’t overlook expenses like mileage, home office, or continuing education—all of which can create impactful deductions.
2. Utilize Retirement Contributions
Contributing to retirement accounts is a powerful tax-saving strategy. Not only are you building your future wealth, but you’re also reducing your taxable income today. Depending on your business structure, consider contributing to an IRA, SEP IRA, or Solo 401(k). Self-employed individuals often get the most mileage out of a Solo 401(k), allowing contributions both as the employer and employee. Review your retirement contribution goals and see how you can optimize before December 31st.
3. Review Your Entity Structure
This is the perfect time of year to assess whether your current entity structure is working in your favor for tax purposes. Using the right business structure, such as an S-Corp or an LLC, can help minimize your self-employment taxes. If your income has changed significantly this year, it may make sense to switch or adjust your salary to better match your tax planning objectives. If your income has changed significantly this year, it may make sense to switch or adjust your salary to better match your tax planning objectives. Reviewing and adjusting your strategy now can have significant tax savings for 2024.
4. Employ Family Members Strategically
Hiring your family members, such as your children or spouse, is a tax-smart move that also keeps income within the household. The wages paid are deductible to your business and potentially tax-free to your family members, provided their income stays under the standard deduction threshold. This strategy can be especially powerful for small businesses, and it's a great way to leverage labor and save on taxes at the same time. Just make sure the pay is reasonable for the work done—just ensure the pay is reasonable for the work done.
5. Defer or Accelerate Income
Depending on how 2024 is shaping up for you, it may make sense to defer income or accelerate it into the current year. If you anticipate a higher income in the upcoming year, consider delaying some income until January. On the other hand, if 2024 was an exceptionally profitable year, it may be better to recognize as much income as possible this year to keep your tax bracket in check. Work closely with your accountant to see which strategy makes the most sense for your unique circumstances.
6. Take Advantage of Section 179 and Bonus Depreciation
Another year-end strategy is leveraging Section 179 and bonus depreciation for significant assets purchased this year. Section 179 allows you to deduct the entire cost of qualifying equipment and software. Meanwhile, bonus depreciation lets you take 80% (down from 100% in prior years) of the cost of qualified assets placed in service in 2024. Timing these purchases before the year ends can help reduce your overall tax liability substantially.
7. Hold a Family Board Meeting
Holiday travel and meals can potentially be deductible if they are tied to legitimate business activities. Consider holding a family board meeting during holiday gatherings. By documenting your meeting agenda, including discussions on business planning, financial reviews, and other strategic decisions, you may be able to deduct certain travel and meal expenses. This strategy helps blend business with family time while ensuring compliance with IRS requirements.
8. Perform a Year-End Tax Meeting
At Olson Tax Planning, LLC, we always advocate for a year-end tax meeting. This is your opportunity to sit down with a tax professional to review your financials, finalize deductions, and craft a strategic approach for the upcoming tax season. Many tax strategies need to be executed before year-end to be effective, and having a plan in place will make the filing process more efficient and stress-free.
Final Thoughts
Year-end tax planning can significantly reduce your liability and help position your business for financial growth. Proactivity is key when it comes to successful tax planning. Don’t wait until the last moment—the sooner you plan, the more you save. Whether you're a seasoned business owner or just getting started, taking the time to optimize your tax strategy now can yield benefits that last far beyond the April filing deadline.
Need help getting started or want personalized guidance for your year-end tax planning? Schedule your year-end review with Tony Olson, MSCTA Olson Tax Planning, LLC today.
