2025 Tax Planning: 5 Key Strategies to Maximize Your Savings

As we approach the new year, many small business owners might think about taxes as a January task. But according to Louis Goldenberg, Director of Tax at Xendoo, that’s already too late. Effective tax planning begins now, in 2024. By taking action before the year ends, you can strategically reduce your tax bill and ensure that your business is in the best possible shape come tax season. Here’s how to approach tax planning for 2025 in a way that maximizes savings and minimizes stress.

1. Spend Strategically Before Year-End

Since taxes are calculated on a cash basis, any expenses paid in 2024 will apply to your 2024 tax return, potentially lowering your taxable income. Here’s how to leverage this approach:

• Prepay expenses: If you have upcoming costs in early 2025, consider paying for them now. From office supplies to vendor invoices, expenses made this year can help offset your 2024 income.
• Invest in assets: Purchase machinery or equipment before year-end to take advantage of the 60% bonus depreciation available in 2024. This deduction may not be as high in future years, so if you’ve been planning to upgrade, now is a great time.

For more details on maximizing end-of-year expenses, visit our Tax Planning page

2. Consider Prepaying Taxes to Avoid Penalties

One overlooked aspect of tax planning is managing estimated tax payments to avoid underpayment penalties. Louis emphasizes that it’s essential to stay on top of these payments to reduce potential fines:

• Make your final 2024 estimated tax payment by January 15, 2025. This is the last date for penalty-free payments.
• Cover at least 110% of last year’s tax liability to avoid penalties, especially if your income has increased this year.

By handling tax payments strategically, you can save your business from late fees and interest.

3. Take Advantage of Depreciation

Tax deductions for assets can offer significant savings, and with bonus depreciation currently at 60% for 2024, this is a prime time to buy essential equipment for your business.

• Plan around depreciation rates: Take advantage of the current rate by purchasing equipment or machinery that will directly benefit your business.
• Choose assets with long-term value: This allows you to not only reduce your tax liability but also improve your operations with upgraded tools and technology.

Making these purchases strategically ensures you maximize your deductions while enhancing your business.

4. Employ Family Members for Tax-Free Benefits

If you have children under 18, there are ways to involve them in the business and receive tax benefits. Louis suggests the following:

• Set up a family LLC: Pay your children through a family-owned LLC for tasks like basic office work, organizing, or even modeling for the company’s website.
• Keep payments under the tax threshold: Payments made this way can often be tax-free for your child, and as a business expense, they reduce your taxable income.

Hiring family members is not only a way to bring them into the business but also a valuable tax-saving strategy. Plus, there are no restrictions on how they can use the money, which can ultimately benefit the family as a whole.

5. Optimize Inventory Expenses

For inventory-heavy businesses, managing purchases can be a powerful tool in tax planning. Since inventory purchases can be deducted in the year they’re paid, buying supplies before year-end can lead to substantial savings:

• Buy inventory in December: Whether it’s supplies or stock for early 2025, buying in December lets you deduct those expenses this year.
• Decide on inventory write-offs: If you have unsold inventory from 2024, evaluate whether it’s best to expense it now or keep it on the balance sheet for next year.

By strategically managing inventory, you can smooth out expenses across tax years and ensure you’re getting the most benefit from every dollar spent.

Don’t Forget Your BOI Report

In addition to tax planning, we want to remind all businesses about an essential compliance requirement: filing your Beneficial Ownership Information (BOI) report. Under the Corporate Transparency Act (CTA) of 2021, many companies are required to file BOI reports with the Financial Crimes Enforcement Network (FinCEN) by January 1, 2025. This requirement is designed to prevent illegal activities such as money laundering and fraud.

Here’s why filing your BOI report is essential:

• Prevent criminal activity: BOI reports help authorities identify the individuals who own a company, deterring activities like money laundering and terrorism financing.
• Protect national security: BOI reports contribute to U.S. national security by curbing illicit financial activities.
• Assist law enforcement: These reports aid law enforcement in identifying criminals who evade taxes or defraud stakeholders.

Filing your BOI report is free and straightforward, and it’s essential for companies created or registered before January 1, 2024, to file by January 1, 2025, to avoid penalties. Failure to file can result in serious civil and criminal consequences, so don’t delay this important compliance step. If you need assistance, Xendoo’s experts are here to help you ensure compliance.