6 Tax Planning Tips to Implement Before Year-End
Many business owners will talk taxes with their CPAs around April 15, 2025. In most cases that would be too late. It is important to remember that effective tax planning should have started during the second quarter of 2024. Don't worry you didn't entirely miss the boat. Here are six powerful business tax deduction strategies you can easily understand and implement before the end of 2024.
One simple and effective way to reduce your taxable income for this year is to delay billing clients, customers, or patients until after December 31, 2024. If you're on a cash-basis accounting system, your income is recognized when billed or received, so postponing invoices means deferring tax liability.
Example: Sarah, a freelance graphic designer, usually invoices her clients at the end of each month. If she waits until the first week of January to send out her December 2024 invoices, the income will be reported in 2025, thus deferring tax on that income.
2. Prepay Business Expenses with the IRS Safe Harbor Rule
Cash-basis taxpayers can take advantage of the IRS Safe Harbor rule, which allows for the prepayment of certain expenses up to 12 months in advance. This strategy ensures you can deduct these expenses for the current year without IRS interference.
Eligible prepayments include office rent, vehicle leases, and business insurance premiums. Keep in mind that the IRS limits prepayments to 12 months, so you can’t extend these into 2026.
Example: If your monthly office rent is $2,500, you can prepay $30,000 for the entire 2025 year by December 31, 2024. You’ll deduct the full $30,000 in 2024, while your landlord reports it as rental income in 2025 when it’s received.
3. Invest in Office Equipment and Claim Big Deductions
Thanks to increased Section 179 limits, your business can fully deduct the cost of most equipment and machinery purchased and placed into service by December 31, 2024. Bonus depreciation can also allow you to write off 60% of the cost.
This applies to new and used personal property such as office furniture, computers, machinery, and even certain vehicles.
Example: You buy new office equipment for $15,000 before the end of the year. Thanks to Section 179 expensing, you can deduct the full $15,000 in 2024.
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4. Use Your Credit Cards for Business Purchases
For business owners filing as sole proprietors or LLCs on Schedule C, purchases made on business or personal credit cards can be deducted in the year the charge is made, even if you don't pay the bill until later. This strategy is particularly useful for last-minute purchases like office supplies.
If you’re a corporation and using a personal credit card, ensure the company reimburses you by December 31 to qualify for a deduction.
Example: As a sole proprietor, you purchase $1,000 worth of office supplies on your personal credit card on December 30, 2024. You can deduct the $1,000 on your 2024 taxes, as the charge was made in that year.
5. Maximize Your Deductions for a Net Operating Loss (NOL)
If your business expenses exceed its income, you could have a net operating loss (NOL) for the year. NOLs can be carried forward to offset taxable income in future years, potentially leading to substantial tax savings down the line.
Don’t underestimate the value of your deductions. Many new business owners overlook deductions they’re entitled to, which could create valuable tax benefits later.
Example: Your business incurs $50,000 in deductible expenses but only $30,000 in income, creating a $20,000 NOL. This NOL can be carried forward and used to reduce taxable income in future years.
6. Claim Qualified Improvement Property (QIP) Deductions
Qualified Improvement Property (QIP) is any improvement made to the interior of a non-residential building you own. The good news is that QIP is considered 15-year property, making it eligible for accelerated depreciation under Section 179 or 60% bonus depreciation.
To take advantage of this deduction in 2024, ensure that the improvements are placed in service by December 31.
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