As the year comes to a close, it’s time for business owners to make thoughtful decisions about tax and financial planning. The following 23 strategies can help you optimize your financial situation, reduce your tax liability, and set your business up for success in the upcoming year.
1. Maximize Employee Contributions to Retirement Accounts
Contribute the maximum allowable amount to your retirement accounts like a 401(k) or Solo 401(k) to lower your taxable income and boost your retirement savings.
2. Maximize Employer Contributions to Retirement Accounts
Take advantage of employer contributions, such as profit-sharing, to further reduce your taxable income and increase your overall investment for the year.
3. Max Out Your Roth IRA or Backdoor Roth IRA
Contribute the maximum amount to a Roth IRA, either directly or via the backdoor Roth strategy, to grow your investments tax-free for retirement.
4. Max Out Your HSA if Eligible
Contribute to a Health Savings Account (HSA) to enjoy triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Let the funds grow if possible.
5. Maximize Contributions to a 529 Plan
Contribute to a 529 education savings plan to benefit from state tax deductions while saving for your child’s education.
6. Optimize Your Qualified Business Income (QBI) Deduction
Optimize your QBI deduction through a combination of business profits and W-2 wages to reduce taxable income and maximize tax savings.
7. Review Your Business Entity Structure for 2024
Ensure that your current business entity structure aligns with your goals. This review will help you make any necessary adjustments for the upcoming year.
8. Review Financial Records and Ensure Accuracy
Take time to review your financial records for accuracy and compliance, preventing potential issues when filing taxes.
9. Consider Paying State Taxes Through Your Business (PTET)
Explore the option of paying state taxes through your business to make them deductible, which could potentially save you thousands in taxes.
10. Defer or Accelerate Income
Strategically defer or accelerate income to optimize your tax bracket for the current year, potentially reducing your overall tax liability.
11. Accelerate Certain Expenses
Prepay some business expenses to increase deductions for the current year, thus reducing your taxable income. Be mindful not to over-spend just to create deductions.
12. Utilize Your Dependent Care FSA Funds
Make sure to use your Dependent Care Flexible Spending Account (FSA) funds for eligible expenses, which can help lower your taxable income.
13. Spend FSA Funds Before the Year Ends
FSA funds typically operate on a “use-it-or-lose-it” basis, so make sure to spend them by the year’s end to maximize your tax savings.
14. Tax Loss Harvesting
Sell investments that have lost value to offset capital gains, reducing your taxable income. Year-end is a great time to accelerate this strategy.
15. Tax Gain Harvesting
Consider selling investments that have appreciated in value to take advantage of lower tax rates, potentially reducing your tax burden.
16. Convert Traditional IRA Funds to a Roth IRA
Consider converting funds from a traditional IRA to a Roth IRA, especially if you are in a lower tax bracket, to benefit from tax-free growth in the future.
17. Review Your Withholding and Estimated Taxes
Ensure that your paycheck or estimated tax payments have been enough to cover your tax liability. Adjust your withholding or estimated payments for the upcoming year.
18. Donate to Charity
Charitable donations can reduce your taxable income. Consider bundling your donations or using a donor-advised fund to maximize your tax benefits.
19. Donate Appreciated Securities
Donate appreciated stocks instead of selling them. This allows you to avoid paying capital gains taxes while still receiving a charitable deduction.
20. Conduct a Cost Segregation Study on Investment Property
If you own investment property, a cost segregation study can help you accelerate depreciation and reduce your taxable income.
21. Invest in a Qualified Opportunity Zone
Investing in a Qualified Opportunity Zone can allow you to defer capital gains taxes and potentially enjoy tax-free growth on your investment.
22. Prepay Property Taxes
Consider prepaying property taxes before the end of the year to take full advantage of the $10,000 SALT deduction limit if you are married.
23. Maximize the Annual Gifting Limit
Use the annual gifting limit to transfer assets to family members, reducing your taxable estate while helping your loved ones financially.
Conclusion
The strategies listed above can have a significant impact on reducing your tax liability and preparing your business for the next year. It’s essential to take action before the year ends to fully maximize your financial opportunities. Work with a tax professional to ensure these moves are tailored to your specific situation and to make the most of your tax-saving potential.
