Preparing for Year-End Tax Strategies: Tips for Business Owners
Nov 08, 2024
As the end of the year gets closer, now’s the time for business owners to look at ways to save on taxes. Doing a bit of planning before December 31 can help keep more money in your business and set you up for success next year. Here are some easy steps to take to help you save on taxes:
1. Put Money Into Retirement Accounts
Adding money to a retirement plan is a simple way to reduce your taxes and save for the future. There are different types of retirement accounts you can use, like a SEP IRA or 401(k), which allow you to put away more money and pay less tax.
- Solo 401(k) Plans: For self-employed people, a Solo 401(k) allows you to contribute more because you’re both the employer and employee.
- SEP IRAs: This is a good choice if you’re a sole proprietor or a small business owner and want to decide each year how much to contribute.
2. Spend on Business Expenses Now
If you expect to earn less next year, you might benefit from making some purchases now to lower your taxable income.
- Buy Supplies and Equipment: Consider purchasing office supplies or equipment before the year ends to deduct these costs from this year’s taxes.
- Prepay Certain Expenses: If you pay cash for expenses, prepaying things like rent, utilities, or insurance could help you get more deductions this year.
3. Review Employee Pay and Year-End Bonuses
Payroll expenses, including bonuses, are tax-deductible. Giving bonuses not only reduces your taxes but can also motivate your employees.
- Year-End Bonuses: If you operate on an accrual basis, you can deduct bonuses in the current year, even if you pay them in January.
- Owner’s Salary: If you have a corporation, paying yourself a reasonable salary before year-end can also help reduce your taxable income.
4. Use Depreciation Deductions
If you’ve bought assets like computers, vehicles, or machinery, there are ways to deduct these costs over time or even all at once.
- Section 179 Deduction: This lets you write off the full cost of certain equipment in the year you buy it, instead of spreading the deduction over several years.
- Bonus Depreciation: Right now, businesses can claim 100% bonus depreciation on some purchases, which is great if you’ve made big buys.
5. See If You Qualify for Tax Credits
Tax credits are a big win because they directly lower your tax bill. You might be able to use credits to save even more.
- Research and Development Credit: If you’ve spent money on creating new products or improving your business, you may qualify.
- Work Opportunity Tax Credit: If you’ve hired employees from specific groups, like veterans, you could claim this credit.
6. Check Your Estimated Taxes
If you don’t pay enough estimated tax throughout the year, you could face penalties. Review your year-end income to make sure you’re on track.
- Avoiding Penalties: The IRS has “safe harbor” rules to help you avoid underpayment penalties if you pay enough estimated tax.
- Adjust Quarterly Payments: If your income has been much higher or lower than usual, you can change your next estimated tax payment.
7. Talk to a Tax Professional
Tax laws can be complicated, and they change often. A tax professional can help you find deductions, credits, and other savings opportunities you might miss on your own.
These year-end tax strategies can help your business keep more of its income. By putting money into retirement, making smart purchases, reviewing payroll, and consulting a tax expert, you can cut down your tax bill and build a stronger financial base for the year ahead. Good tax planning now isn’t just about paying less tax—it’s about keeping your business healthy and ready for growth.
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