Year-End Tax Saving Strategies for 2024: Navigating Uncertainty During Election Year

As 2024 comes to a close, business owners are focusing on finishing the year strong. That said, since 2024 is a U.S. presidential election year, there is uncertainty around potential changes to tax laws and economic policies that can make financial planning more challenging. Regardless of the political climate, you can take several practical steps to maximize your tax savings before the year ends. Here are some proven strategies to help you minimize your tax liability and keep your business finances on track in 2024.

Maximize Deductions Through Accelerated Expenses

One of the simplest ways to reduce taxable income is to accelerate deductible expenses before the end of the year. If you anticipate that 2025 will bring higher tax rates, or if you're looking to reduce this year's tax burden, consider the following:

• Purchasing equipment: Use the Section 179 deduction to write off the cost of new or used equipment up to $1.16 million (for 2024). *This allows you to fully deduct the purchase price rather than depreciating it over time.
• Prepaying expenses: You can prepay certain expenses like rent, insurance, or supplies, as long as these payments don't extend beyond 12 months. This strategy lets you claim deductions this year while benefiting from the goods or services next year.
• Hiring incentives: If you plan on expanding your workforce, taking advantage of federal and state tax credits, such as the Work Opportunity Tax Credit (WOTC), can lower your tax bill.

Take Advantage of Bonus Depreciation

Bonus depreciation allows you to write off 60% of qualifying property in the first year it's placed into service in 2024. This includes purchases such as machinery, computers, office furniture, and even specific building improvements. Consider making necessary capital investments before year-end to maximize the benefit.

Review Your Retirement Contributions

Business owners can benefit significantly from contributing to retirement plans, both for themselves and their employees. Contributions to retirement accounts such as *SEP IRAs, SIMPLE IRAs, or 401(k)s* are tax-deductible, allowing you to lower taxable income.

• For 2024, the maximum 401(k) contribution is $23,000, or $30,500 for those age 50 or older.
• Setting up a retirement plan for your employees reduces taxable income and can help you qualify for the Retirement Plan Startup Cost Credit.

Defer Income Where Possible

Deferring income until 2025 is a valuable tax strategy, especially if you expect tax rates to remain the same or increase after the election. By delaying invoicing or postponing receipt of income until January, you can push that income into next year and avoid taxation on it in 2024.

Consider the Qualified Business Income (QBI) Deduction

The Qualified Business Income Deduction, introduced by the Tax Cuts and Jobs Act, allows eligible business owners to deduct up to *20% *of their qualified business income. However, this deduction is subject to limitations based on total taxable income. Review your business's taxable income to ensure you're maximizing this deduction, and consider lowering your income with additional deductions if you're close to the threshold.

Review Payroll and Employee Benefits

If you offer benefits such as health insurance, it's important to ensure that you're taking full advantage of tax credits and deductions. Small businesses that provide health insurance may qualify for the Small Business Health Care Tax Credit. Additionally, reviewing year-end payroll expenses can help you fine-tune your tax strategy:

• Year-end bonuses: Paying out bonuses to employees can increase morale while providing additional deductions for your business.
• Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs):
• Contributions to these accounts are tax-deductible, so ensure you maximize the benefits for your employees and yourself.

Take Stock of Charitable Contributions

Donating to qualified charities is not only a great way to give back but also a way to lower your taxable income. Cash donations are deductible up to 60% of your adjusted gross income (AGI), while donations of inventory or property may also be eligible for deductions. Be sure to keep detailed records of all contributions to maximize this benefit.

Plan for Potential Policy Changes

With the 2024 election year creating potential shifts in tax policy, it's crucial to stay informed about any pending tax reforms or changes to tax rates that could take effect in 2025. Many tax incentives and credits, such as the *QBI deduction*, may face alterations depending on the election's outcome. Working closely with a tax advisor can help you anticipate these changes and adjust your strategies accordingly.

Evaluate Your Business Structure

Election years often bring discussions of tax reform, especially around corporate tax rates. Now may be a good time if you haven't recently reviewed your business structure. For example, switching from a sole proprietorship to an S-corporation or LLC could offer significant tax savings, depending on your business's profits and your personal tax situation.

Final Thoughts: Planning for the Unknown

Tax planning becomes even more critical with the added uncertainty of a U.S. election year. It is essential to be proactive and flexible in your approach to year-end tax strategies. *By maximizing deductions, taking advantage of available tax credits, and planning for potential policy shifts, you can position your business for financial success in 2024 and *beyond.

As always, consult with your trusted tax advisor or CPA to ensure you make the most informed decisions for your business. Reach out to Cambaliza McGee LLP to review what options can reduce your tax burden and take control of your financial future, no matter what the election results may bring.