Tax Tips: 4 Moves That Can Save Your Business Big

As a small business owner, the end of the year is the perfect time to review your financials and plan for taxes. By making the right tax moves, you can minimize your tax liability and maximize your tax-saving strategies before the calendar turns. Many business owners wait until the last minute, but with a little planning now, you can save money and avoid stress later.

In this post, we’ll explore five key tax moves for business owners to help you make the most of this tax season. These tips will help you with everything from maximizing tax deductions to contributing more to your retirement savings. No matter the size or structure of your business, these strategies can benefit you.

1. Accelerate Expenses to Maximize Deductions

One of the easiest ways to reduce your taxable income in the current year is by accelerating your business expenses. This is a smart tax-saving strategy that can help lower your overall tax burden for the year.

Why it Works

Accelerating expenses means bringing forward costs that you know will occur next year into the current year. By doing so, you can reduce your taxable income and take advantage of important small business tax deductions before the end of the year.

How to Do It

• Prepay for Services and Supplies: If you’re planning to purchase office supplies, software, or services, consider paying for them before December 31. Doing so allows you to accelerate expenses and apply the deduction for the current year.
• Pay Insurance Premiums Early: Don’t wait until next year to pay for your business insurance. Pay it early to reduce your taxable income for 2024.
• Schedule Maintenance or Repairs: If any office equipment needs repair or maintenance, consider completing these tasks before year-end to qualify for tax deductions.
• Use Depreciation: If you’re purchasing new equipment or assets, take advantage of bonus depreciation and Section 179 to maximize your deductions.

Things to Keep in Mind

While accelerating expenses can save on taxes, you should make sure that your business can manage the cash flow and that the expenses are necessary for business operations.

2. Maximize Retirement Contributions

Contributing to a retirement plan is one of the best tax-saving strategies for small businesses. Not only does it reduce your current-year taxable income, but it also ensures you’re building for your future.

Why it Works

By making higher contributions to your SEP IRA or Solo 401(k), you can reduce your taxable income and take advantage of tax-deferred growth. This is an excellent opportunity for business owners to make substantial retirement savings while lowering taxes.

How to Do It

• Max Out Your SEP IRA or Solo 401(k): For 2024, you can contribute up to $66,000 to your SEP IRA, or up to $66,000 in total to your Solo 401(k). Both plans allow for high contribution limits, especially if you are a self-employed business owner.
• Make Contributions Before December 31: To take full advantage of the tax deductions for retirement contributions, make sure to contribute before the year ends to reduce your taxable income for 2024.

Things to Keep in Mind

Be sure to choose the right retirement plan based on the size of your business and your goals. Consulting with a tax professional can help determine the best retirement savings strategy for your needs.

3. Take Advantage of Tax Credits for Small Businesses

Tax credits are one of the best ways to reduce your tax liability because they directly reduce the amount of taxes you owe. As a small business, you might be eligible for several tax credits that you don’t want to miss.

Why it Works

Unlike deductions, which reduce your taxable income, tax credits directly reduce the amount of tax you owe, which can result in significant savings.

How to Do It

• Research Available Tax Credits:
  • R&D Tax Credit: If your business is involved in research and development, you may qualify for the Research and Development Tax Credit. This credit applies to businesses investing in new technologies and innovations.
  • Employee Retention Credit (ERC): If you retained employees during the pandemic, you could still be eligible for the Employee Retention Credit, which offers up to $5,000 per employee.
  • Work Opportunity Tax Credit (WOTC): Hiring individuals from specific target groups, such as veterans or those from disadvantaged backgrounds, could qualify you for the WOTC, offering up to $9,600 per employee.
• Look Into State-Specific Tax Incentives: Many states offer local tax credits for businesses that invest in sustainable practices or local job creation. These credits can provide additional tax savings.

Things to Keep in Mind

Tax credits often come with specific eligibility criteria, so be sure to consult with your accountant to ensure your business qualifies for any available credits.

4. Review and Optimize Your Business Structure

Your business’s legal structure—whether it’s a sole proprietorship, LLC, or S-corp—can have a significant impact on your taxes. Reassessing your structure before year-end could lead to substantial tax savings.

Why it Works

Different business structures come with varying tax benefits. By optimizing your business structure, you can potentially lower your overall tax liability.

How to Do It

• Consider Electing S-Corp Status: If you’re a sole proprietor or LLC owner, electing S-corp status could help you save on self-employment taxes. With an S-corp, you can pay yourself a salary and take the remaining profits as distributions, which are not subject to self-employment tax.
• Explore C-Corp Tax Benefits: If your business is growing rapidly, a C-corp structure could offer tax advantages, especially if you plan to reinvest earnings back into the business rather than paying them out as dividends.
• Review LLC Tax Elections: If you operate as an LLC, check if electing S-corp taxation will help you save on taxes. This decision depends on your business’s size and profitability.

Things to Keep in Mind

Changing your business structure can involve legal paperwork and might have long-term implications. Be sure to consult with a tax professional before making any changes.

Conclusion

Taking the right steps now can make a huge difference come tax time. By accelerating expenses, maximizing retirement contributions, leveraging tax credits, and reviewing your business structure, you can significantly reduce your tax liability before the year ends.

For more tax planning tips for business owners or to get a head start on preparing for tax season, check out our guide on How to Prepare for Tax Season. This will help you get organized and set up for tax season well in advance.

If you haven’t already, take a moment to talk to your accountant about how these strategies can work for your business. As always, proactive tax planning today can set you up for a financially successful year ahead.