The end of the year is crunch time for small business owners to organize their finances and reduce their 2024 tax bill. Implementing effective tax strategies now can help you maximize savings, manage cash flow and ensure compliance with tax deadlines. Taking action before December 31 is key to putting your business in a stronger position for the upcoming year.
Here’s a straightforward year-end tax planning checklist to help small businesses take control and uncover tax-saving opportunities.
1. Defer or Accelerate Business Income
Managing when income and expenses are recognized for tax purposes can significantly impact your tax liability.
When to Defer Income to 2025
If you expect your business’s income to remain steady or increase next year, deferring income to 2025 may lower your 2024 tax liability. For example, cash-basis businesses can hold off on sending late-year invoices or delay payment requests until January. You will still need to pay taxes on these earnings, but you can wait until the following year to make a payment.
When to Accelerate Income into 2024
Alternatively, if you anticipate earning more in 2025 or believe tax rates may rise, consider accelerating income into 2024. By doing this, you’re taxed at the current lower rate. For instance, you could send invoices early or request prepayment for end-of-year services.
What About Expenses?
Expenses can also be accelerated or deferred based on your business needs and tax strategy. For example, if you expect to be in a higher tax bracket in the current year, consider prepaying expenses like business insurance, office supplies or marketing to reduce your business's taxable income.
2. Reassess Your Business Entity
The end of the year is a smart time to evaluate whether your current business structure is still the best fit for your operations. Each structure has unique tax implications:
- Sole Proprietorships
Many small businesses start as sole proprietorships because they’re easy to set up and maintain—no paperwork or declaration with the IRS is required. The U.S. Census estimates that 73% of small businesses are sole proprietorships. Sole proprietorships are considered “pass-through” entities, meaning business income and expenses are passed on to the business owner. Depending on your profits, this can potentially increase your tax burden. - Corporations and LLCs
Incorporating may help you save on self-employment taxes, shield personal assets and provide greater retirement planning benefits. However, this can come with increased paperwork, stricter reporting laws and additional costs. Depending on your situation, switching to an S corporation, C corporation or LLC could reduce your tax liability.
Consult a tax professional to help identify the most advantageous structure for your business.
3. Deduct Bad Debt
Small businesses using accrual accounting can benefit from recognizing “bad debt”—money owed to you that’s unlikely to be collected. If you’ve included the unpaid amount in your gross income, the IRS lets you deduct that “bad debt” to reduce your taxable income. Keep detailed records documenting your efforts to collect the debt, as the IRS may require proof.
“Bad debt” can be reduced in part or full. Additionally, you may claim bad debt using either the specific charge-off method or the nonaccrual experience method. You can find full instructions on deducting bad business debts on the IRS website.
4. Make Office Improvements & Repairs
The end of the year is a great time to improve or repair your workspace, especially if doing so can reduce your taxable income. Minor repairs to a business's premises are tax-deductible. The IRS categorizes these as repairs or improvements based on the following:
- Routine Repairs
Costs for maintenance tasks, such as fixing plumbing or painting your office walls, are fully deductible for the year they are incurred in. - Major Improvements
Updates that enhance your property’s value – like replacing an HVAC system or adding new office space – typically depreciate over several years up to 27.5 years. - Home Office
The IRS has strict rules about what is considered a home office. To qualify for tax deductions, a home office must be exclusively used for business. For example, if you use a spare room solely for business purposes, it is considered a home office. However, if you also have guests staying in this room, it is not considered a home office and is not eligible for tax deductions.
Review your records carefully to ensure expenses are categorized correctly to maximize tax benefits.
5. Take Advantage of New Business Deductions
If you started a new business in 2024, you may qualify for start-up expense deductions.
What Counts as Start-Up Costs?
Start-up costs include market research, legal fees, payroll, rent, utilities and setting up your business structure. You can immediately deduct up to $5,000 in expenses if your total doesn’t exceed $50,000. If your expenses exceed this limit, the deduction phases out by the amount you exceeded the $50,000 limit. For instance, if you spent $51,500 on start-up expenses, you could only deduct $3,500 on your tax return.
To qualify for the new business deduction, you must have started your business before year-end and it should be an ongoing activity. Even if your business idea didn’t take off, you may still qualify for deductions on research-related expenses.
6. Maximize Qualified Business Income (QBI) Deduction
The Qualified Business Income deduction allows eligible pass-through entities to deduct up to 20% of their QBI. Small businesses structured as sole proprietorships, S corporations or partnerships may qualify if taxable income falls below $191,950 for single filers or $383,900 for joint filers.
If you are eligible for the QBI, plan ahead by managing taxable income by accelerating deductions or deferring income. Contributing to a retirement plan, increasing payroll or making charitable contributions can bring your income below the threshold to maximize benefits.
This deduction, introduced in 2017, is set to expire in 2025 as part of the Tax Cuts and Jobs Act, so be sure to utilize it while you can.
7. Leverage Tax Credits
Business tax credits can directly reduce the amount of taxes your business owes. Here are some credits small businesses may qualify for:
- Work Opportunity Tax Credit (WOTC)
The WOTC is a financial incentive for business owners to hire individuals from specific groups who consistently face barriers to employment. These groups include veterans, former felons and family members getting benefits under the Temporary Assistance for Needy Families (TANF) program. The credit is up to $2,400 per new hire. - Disabled Access Credit (DAC)
This program helps offset costs associated with improving accessibility for individuals with disabilities. Eligible small businesses can claim up to 50% of expenses over $250, up to $10,000. - Small Employer Health Insurance Credit
If you participate in the Small Business Health Options Program (SHOP), you may qualify for a tax credit to offset the cost of health insurance premiums. The Small Business Health Care Tax Credit can offset up to 50% of employers’ premium contributions (up to 35% for tax-exempt employers). There are several eligibility requirements for claiming the tax credit.
Take some time to review available credits with your tax advisor, as these savings can add up quickly.
8. Contribute to a Retirement Plan
Retirement account contributions are an excellent tactic for reducing taxes and helping both you and your employees save for the future.
Self-employed business owners can contribute up to 25% of their income (up to $69,000 per year) to a Simplified Employee Pension (SEP) IRA. There is no year-end deadline for contributing to a SEP; you typically have until the tax return deadline.
Another great option is a Solo 401(k), which allows high contribution limits by counting you as both employer and employee. A Solo is best for a sole proprietor, freelancers and independent contractors.
Employers can also provide employees with year-end bonuses and retirement contributions, which may be deductible. Retirement contributions are a win-win for tax savings and attract and retain quality employees.
Key Tax Deadlines for 2025
While Tax Day is Tuesday, April 15, 2025, it's not the only important day to keep in mind for 2025. Here are a few additional dates to mark on your calendar to ensure timely tax filings and avoid penalties:
- January 15, 2025: Q4 2024 estimated tax payments
- March 17, 2025: Partnerships and S corporation tax returns
- April 15, 2025: Individual and C corporation tax returns due, plus the deadline for 2024 retirement contributions
- June 16, 2025: Q2 estimated tax payments
- September 15, 2025: Q3 estimated tax payments and extension
- October 15, 2025: Final extension deadline for individual and corporate returns
Plan Ahead: Smart Tax Planning for Businesses in 2025
Every business’s tax situation is unique, and no one-size-fits-all strategy exists. While this year-end tax checklist offers a range of actionable steps, small businesses can benefit significantly from tailoring these strategies to match their financial needs and goals.
Working with an experienced tax professional ensures you maximize savings, stay compliant and create a plan that supports your success—for this year and beyond. Make the most of these final weeks of 2024 and plan confidently for a profitable new year!
Contact an LTax tax advisor today or call us at 561-453-1441 to start planning your small business tax strategy.
LEGAL OR TAX: The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.