If you’re waiting until tax time to think about tax strategy, you’re making a mistake. There’s so much more you can take advantage of before year-end to optimize your tax savings and financial outcomes. Tax planning should be proactive, not reactive, and it’s crucial to work closely with your team of professionals—your financial advisor and accountant—to maximize your opportunities.
As we approach year-end, here are 10 tax planning strategies every business owner should consider:
1. Maximize Employee 401(k) Contributions
If you’ve set up a 401(k) plan, make sure you and your employees are maximizing contributions. Employees can contribute up to $23,000 in 2024 (or $30,000 if they’re 50+). As an employer, you can make profit-sharing contributions up until your tax filing deadline. These contributions reduce taxable income while building retirement savings.
2. Adjust Salary and Optimize the QBI Deduction
The Qualified Business Income (QBI) deduction allows eligible business owners to deduct 20% of business income. However, for non-SSTBs (Specified Service Trade or Business) earning over the income limit, this deduction becomes the lesser of 50% of W-2 wages or 20% of business income. Adjusting your salary or compensation structure strategically before year-end can significantly impact this deduction and potentially lead to large savings.
3. Consider a Roth Conversion
If your taxable income is lower than usual this year, converting some pre-tax retirement funds into a Roth IRA could make sense. Roth conversions create taxable income now but allow for tax-free growth and withdrawals later—a great move in lower tax years.
4. Take Advantage of Tax Loss Harvesting
Offset gains or reduce your taxable income by selling investments at a loss. This strategy can help balance your portfolio while minimizing taxes on capital gains. Your losses first start by offsetting any realized gains in your portfolio, and then you are allowed to deduct up to $3,000 of losses off of your income, and carry forward remaining losses to future years.
5. Harvest Gains in Low Income Years
If you’re in a low tax bracket, selling investments at a gain could be advantageous. The long-term capital gains tax rate for lower brackets can be 0%, allowing you to reset your cost basis without incurring taxes.
6. Accelerate Expenses
Looking to reduce your taxable income this year? Prepaying expenses—such as rent, insurance, or supplies—can give you an immediate tax benefit. However, ensure these deductions align with your cash flow needs. Do not make a purchase solely for the tax deduction. You’ll end up spending more than the tax benefit you’ll receive.
7. Utilize Gifting Strategies
The annual gift exclusion allows you to gift up to $18,000 per individual in 2024 without triggering gift taxes. Additionally, the Tax Cuts and Jobs Act (TCJA) significantly increased the lifetime estate tax exemption, which is set to sunset after 2025. Consider maximizing these opportunities now. You and your spouse can each gift $18,000 to an individual allowing you to gift double and stay under the annual exemption.
8. Conduct a Cost Segregation Study
If you’ve purchased a property this year, a cost segregation study can help you accelerate depreciation and reduce taxable income. While the property must be purchased before year-end, the study itself can be completed before your tax filing deadline. A cost segregation study allows you to depreciate specific items on your real estate investment property at a faster rate and receive a larger tax deduction up front. But be aware, when you sell your property, you often will need to pay back this depreciation in the form of a deprecation recapture tax at 25%.
9. Leverage Section 179 for Vehicle Purchases
If you’ve been considering purchasing a business vehicle, doing so before year-end could allow you to take advantage of the Section 179 deduction. Eligible vehicles must weigh over 6,000 pounds and be used primarily for business. It is crucial that you follow IRS guidelines to qualify.
10. Donate to Charity
Charitable contributions remain a valuable tax deduction if you itemize. Consider “bunching” donations by combining several years’ worth into one tax year or setting up a Donor-Advised Fund (DAF) to maximize your deductions and charitable impact.
Wrapping It Up
Year-end tax planning isn’t just about minimizing your current tax bill—it’s about setting your business and personal finances up for long-term success. Each of these strategies offers unique benefits, but timing and execution are key. Be sure to consult with your financial advisor and accountant to develop a customized plan that aligns with your specific financial goals.
Don’t wait until April—start planning now and make the most of your hard-earned income.
Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
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