As the calendar year winds down, small business owners have an opportunity to make strategic moves that can significantly impact their tax situation.
Taking the time now to review your tax strategy can lead to substantial savings and help you start the new year on a solid financial foundation. Read on for potential tax-saving moves:
Establish a tax-favored retirement plan
If your business doesn’t already offer a retirement plan, now’s the time as current rules allow for significant deductible contributions.
If you’re self-employed and set up a SEP plan, you may contribute up to 20% of your net self-employment income, with a maximum tax-deductible contribution of $69,000 for 2024. Employed by your own corporation? Up to 25% of your salary may be contributed, with a maximum $69,000 tax-deductible contribution for 2024.
Leverage Section 179 deductions
Under current federal income tax rules, there are generous first-year tax write-offs for eligible assets:
- Up to the maximum allowable deduction of $1.22 million on qualifying property placed in service in tax years beginning in 2024
- Up to the maximum annual Section 179 deduction allowance ($1.22 million for tax years beginning in 2024) on certain real property expenditures called Qualified Improvement Property (QIP)
Claim first-year bonus depreciations
A 60% first-year bonus depreciation is available for qualified new and used property that is acquired and placed in service in calendar year 2024. That means your business may be able to write off 60% of the cost of some or all of your 2024 asset additions on this year’s return.
Strategize to accelerate or defer income
Deferring income into next year while accelerating deductible expenses into this year may make sense if you expect to be in the same or lower tax bracket next year. On the other hand, if you expect to be in a higher tax bracket in 2025, you may take the opposite approach — accelerating income into this year and postponing deductible expenses until 2025.
Maximize the Qualified Business Income (QBI) deduction
The QBI deduction is scheduled to sunset after 2025, so maximizing the deduction before it disappears may make sense, depending on your tax situation. For tax years through 2025, the deduction can be up to 20% of a businessowner’s QBI.
Claim the gain exclusion for qualified small business stock
Don’t overlook the 100% federal income tax gain exclusion privilege for eligible sales of Qualified Small Business Corporation (QSBC) stock that was acquired after September 27, 2010. QSBC shares must be held for more than five years to be eligible for the gain exclusion break.
Employ family members
If a family member is a bona fide employee, the taxpayer can deduct the wages and benefits, including medical benefits, paid to the employee on Schedule C or F as a business expense — reducing the proprietor’s self-employment tax liability.
In addition, wages paid to a dependent under age 18 are not subject to federal employment taxes, are deductible at your marginal tax rate, are taxable at the child’s marginal tax rate, and can be offset by up to $14,600 (your unmarried child’s maximum standard deduction for 2024).
Questions? Reach out to Magone & Company
Our goal is to help you make smarter decisions to minimize your small business’s tax liability and lower your next income tax bill. If you have questions or would like our expertise in evaluating your tax planning options, give us a call at (973) 301-2300.
This document is for informational purposes only and should not be considered financial advice. Be sure to consult with a knowledgeable tax adviser regarding your taxes.