As the year draws to a close, it's crucial for business owners to take advantage of impactful tax and financial planning moves. Here are 23 strategies to consider:
- Max Out Your 401(k), Solo 401(k), etc. on the Employee Side
- Contribute the maximum amount to your retirement accounts to reduce taxable income and increase your retirement savings.
- Max Out Your 401(k), Solo 401(k), SEP IRA, etc. on the Employer/Profit Sharing Side
- Take advantage of employer contributions to further reduce your taxable income and add to your yearly investing.
- Max Out Roth IRA/Backdoor Roth IRA
- Contribute to a Roth IRA directly or via a backdoor method to get more tax free dollars invested.
- Max Out Your HSA if Possible
- Contribute to a Health Savings Account (HSA) for triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Let it grow if you can.
- Max Out 529 to the State Tax Benefit
- Contribute to a 529 plan to take advantage of state tax benefits and save for future education expenses for your kids.
- Maximize QBI (Qualified Business Income)
- Optimize your Qualified Business Income deduction through W-2 salaries or business profits to reduce taxable income.
- Evaluate Entity Structure for 2024
- Review your business entity structure to ensure it aligns with where your business is going.
- Review Books and Ensure Everything is Correct
- Conduct a review of your financial records to ensure accuracy and compliance, avoiding potential issues during tax season.
- Consider PTET (Pass-Through Entity Tax)
- Pay state taxes through your business to make them deductible, potentially saving thousands in taxes. Might have to plan for this for next year.
- Defer/Accelerate Income
- Strategically defer or accelerate income to optimize your tax bracket for the current year.
- Accelerate Certain Expenses
- Prepay expenses to increase your deductions for the current year, reducing taxable income. But don't just spend to spend.
- Use Dependent Care FSA Funds
- Utilize your Dependent Care Flexible Spending Account (FSA) funds to cover eligible expenses and reduce taxable income.
- Use FSA Funds as Most are Use-It-or-Lose-It
- Spend your FSA funds before the year ends to avoid losing them and maximize your tax savings.
- Tax Loss Harvesting
- Sell losing investments to offset capital gains and reduce your taxable income. The end of the year is a great time to speed this up.
- Tax Gain Harvesting
- Sell investments at a gain o take advantage of lower tax brackets, potentially paying less in taxes.
- Roth Conversions
- Convert traditional IRA funds to a Roth IRA to maximize lower tax brackets or the current bracket you are in, benefiting from tax-free growth. This can be a great move for many in the first few years of starting a business.
- Review Withholding and Estimated Taxes
- Ensure you've withheld enough from your paycheck or saved enough from business profits to cover your tax liability. Then make the change for next year.
- Donate Cash to Charity
- Make charitable donations to reduce taxable income. Consider bunching donations or using a donor-advised fund for greater tax benefits.
- Donate Highly Appreciated Securities
- Donate appreciated securities before selling to avoid capital gains tax and receive a charitable deduction.
- Cost Segregation Study on Investment Property
- Conduct a cost segregation study and take advantage of bonus depreciation (currently at 80%) to reduce taxable income.
- Invest in a Qualified Opportunity Zone
- Defer large capital gains by investing in a Qualified Opportunity Zone, potentially benefiting from tax-free growth.
- Prepay Property Taxes
- Prepay property taxes to maximize the $10,000 deduction limit (if married), reducing taxable income.
- Use the Annual Gifting Limit
- Utilize the annual gifting limit to transfer money to family members, reducing your taxable estate.
Time is running out for this year—take action now to optimize your tax and financial situation.
