The close of 2024 is quickly approaching but there is still time to revisit and potentially implement tax savings strategies before the clock runs out. And beyond tax savings strategies, now is also a great time to ensure your records are in order ahead of the busyness of the holidays and after that…tax season. By staying organized, you can have confidence that you won’t be caught off-guard with a not-so-fun tax surprise.
YEAR-END PLANNING QUESTIONS TO ASK YOURSELF:
Are there any assets that you might be able to place into service before year-end? Or do you need to make any large purchases? If you are in a position to place a property into service (i.e., a property available for rent), you might want to consider doing this before the end of the year. This can also apply to business vehicles (if you can maintain at least 50% business use), business equipment, and other depreciable assets. For 2024, bonus depreciation is 60% (to be fully phased-out by 2027 under the current plan) so you might be looking at some serious tax savings if you have qualifying assets. We never recommend purchasing business assets for the sole purpose of tax savings, you always need to take the entire picture into consideration. However, if you were already considering purchasing business assets, it might be smart to do so before the end of year. Please consult your tax advisor before making significant purchases.
Can you prepay any expenses before year-end? You might be able to prepay certain business expenses (i.e., insurance, rent, utilities, etc) in order to receive the benefit in the current year by reducing taxable income. You can also apply this same principle to the purchase of business equipment and vehicles, repairs and maintenance, and more. Please keep in mind that, for cash basis taxpayers, expenses that you’re prepaying should typically provide a benefit lasting 12 months or less.
Can you make any contributions to retirement accounts? If you are enrolled in an employer’s 401(k) plan you have until the end of the year to make contributions. However, for Traditional and Roth IRAs, you have until 4/15/2025. Maximizing retirement contributions has multiple benefits - one being potential tax savings but also, you’re taking positive steps towards retirement and saving for the future.
What about charitable contributions? For taxpayers that itemize, eligible cash contributions are deductible up to 60% of your Adjusted Gross Income. If you itemize and charitable giving is important to you, consider bundling your contributions and doing so prior to year-end.
What are some other potential tax planning strategies to consider before year end?
Tax loss harvesting can be used to offset any capital gains or ordinary income.
Maximizing HSA contributions. Similar to IRAs, you can make contributions up until 4/15/2025.
If your children helped you in your business, you can pay them wages.
With all tax planning strategies, please consult your own tax advisor before implementing.
YEAR-END HOUSEKEEPING ITEMS FOR BUSINESS OWNERS:
It is always better to maintain accurate books and records throughout the year but it is never too late to start.
Bookkeeping. Are your books up to date? Do you have a way of maintaining receipts/invoices? Now is a good time to get caught up on those monthly reconciliations and make sure you have accurate records to document your income and expenses for the year.
Business Mileage. If you have business mileage, have you been tracking it throughout the year? If the answer is no, reach out to your bookkeeper or tax advisor for advice on how you can go about documenting any business miles for the year.
1099-NECs. Did your business pay any independent contractors more than $600this year? If you said yes, you will need to issue them a 1099-NEC by 1/31/2025. Make sure you have gathered W4s and are prepared to issue those 1099s come January. You can revisit this previous blog post if you’re unsure of how this might apply to your business.
File Beneficial Ownership Information Report. If you haven’t already filed your BOI Report, as required by the Financial Crimes Enforcement Network, you will need to do so by 12/31/2024. You can read more about the requirements at the FinCEN website and whether or not this applies to your business.
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