Here’s Top Tax Planning Strategies for Your Business in Q4
From: shahaccountingcpa.com
As the fourth quarter approaches, it’s the perfect time to review your business’s financials and ensure you’re taking advantage of the best tax strategies available before the year closes. Whether your goal is to lower your tax burden, increase profitability, or simply avoid surprises come tax season, here are some key tax planning strategies to consider:
1. Maximize Section 179 Deductions
The Section 179 deduction allows businesses to deduct the full purchase price of qualifying equipment and software in the year it’s placed into service, rather than depreciating the cost over time. If your business needs new equipment or technology upgrades, now is the time to act. This deduction is especially valuable for small and mid-sized businesses.
2. Bonus Depreciation on Qualified Property
For property purchased and placed into service before the end of the year, bonus depreciation can help businesses write off up to 60% of the cost. Take advantage of this opportunity for large capital expenditures, but keep in mind that bonus depreciation rates are decreasing over the next few years.
3. Review Retirement Plan Contributions
Contributing to retirement plans like a 401(k) or SEP IRA can significantly reduce your taxable income. Consider increasing contributions or setting up a plan if you don’t already have one in place. Not only will this help lower taxes, but it also serves as a benefit for employees and business owners alike.
4. Research & Development (R&D) Tax Credits
If your business invests in innovation, product development, or improving existing services, the R&D tax credit can offer a substantial tax savings opportunity. Many companies overlook this credit, but it can be a game-changer for businesses that qualify, providing dollar-for-dollar reductions in your tax bill.
5. Evaluate Cash Flow for Year-End Purchases
If your cash flow allows, consider making any large business-related purchases or paying upcoming expenses before the year’s end. This could help lower your taxable income for 2024 and position your business for growth going into next year.
6. Year-End Tax Loss Harvesting
If your business holds investments, now is a good time to review them for potential tax loss harvesting. Selling investments at a loss can offset gains and reduce your overall taxable income. Work with a tax professional to determine the most advantageous strategy for your portfolio.
7. Consider State and Local Tax (SALT) Workarounds
Depending on your state, there may be opportunities to utilize state and local tax (SALT) workarounds. Certain states have implemented pass-through entity tax elections, which may allow you to deduct state taxes on your federal tax return. Check with your tax advisor to see if this strategy is available and beneficial for your business.
8. Accelerate or Defer Income and Expenses
Depending on your projected income for this year and next, it may be wise to either accelerate income or defer expenses. By doing so, you can manage your tax brackets and potentially reduce your overall tax liability. A year-end projection can help determine the best approach.
9. Year-End Gifts and Charitable Contributions
If you plan to make charitable donations or gifts, doing so before the year ends can create additional tax savings. In certain cases, these contributions are fully deductible, making them a win-win for your business and the causes you care about.
10. Review Entity Structure for Tax Efficiency
The end of the year is an ideal time to review your business’s entity structure to ensure it’s still the most tax-efficient for your situation. Depending on your growth, industry, or tax law changes, it may be advantageous to change from a sole proprietorship to an S-Corp, C-Corp, or other structure that could offer significant tax savings. This type of strategic review can help position your business for long-term success.
Conclusion:
Get Ahead of Tax Season with Proactive Planning. We recommend meeting with a tax professional before the year closes to review these strategies and others that may be applicable to your business. By implementing proactive tax planning, you can set your business up for success, both now and in the long term.
