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.
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.
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:
Consult a tax professional to help identify the most advantageous structure for your business.
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.
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:
Review your records carefully to ensure expenses are categorized correctly to maximize tax benefits.
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.
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.
Business tax credits can directly reduce the amount of taxes your business owes. Here are some credits small businesses may qualify for:
Take some time to review available credits with your tax advisor, as these savings can add up quickly.
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.
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:
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.