Effective tax planning is essential for the financial success of your small business. By proactively addressing tax obligations and taking advantage of available deductions and credits, you can minimize your tax burden and reinvest those savings back into your business. Neglecting tax planning can lead to costly penalties, missed opportunities, and financial strain, ultimately hindering the growth and profitability of your enterprise. To ensure you’re taking advantage of the many overlooked tax deductions and credits available, check out these year-end tax tips for small business owners.
Easy Year-End Tax Tips
Use the Home Office Deduction
You could be eligible for the home office deduction if you’re one of the millions running a small business from home. There are three basic requirements you must meet to qualify:
- You must be self-employed or a business owner;
- Your home must be your principal place of business; and
- You must have a designated space that is used exclusively for business
To calculate your total tax deduction, you may use either the simplified method or actual expenses. With the simplified method, you’ll calculate based on the $5 IRS rate per square footage with a maximum of $1,500 allowed. If you use actual expenses, it’s a bit more cumbersome but you could receive a larger deduction. To learn more about allowable expenses, be sure to check out our Home Office Deduction Easy Guide.
Maximize Retirement Plan Contributions
Do you have an IRA or a simplified employee pension (SEP)? If you’re self-employed, maximize your contributions by December 31 to lower your taxable income on your tax return. You can contribute up to $16,000 in 2024 (or $19,500 if you’re 50 or older) to your IRA. For a SEP, you cannot exceed 25% of your net earnings or $69,000 (2024), whichever is smaller.
Donate to Charity
Another way to reduce your taxable income is to donate to charity. Consider donating unused inventory, older furniture, clothes, toys, and cash. Just be sure to document everything and keep all receipts. It’s a great way to reduce your tax liability and help others.
Remove Obsolete Inventory
Do you have old or unused inventory? If you don’t donate it to charity and take the deduction, you could also give it away and deduct the original cost of the inventory as an expense on your tax return.
Other Year-End Tax Tips
Take Advantage of Section 179
If you’re thinking about purchasing new office equipment, furniture, vehicles, or even computer software, do it before the end of the year and take advantage of the Section 179 deduction. Under Section 179, you can deduct the full cost of your purchases on this year’s tax return instead of spreading it out over several years. To qualify, your asset must be:
- Tangible (buildings and land don’t qualify);
- Purchased (leased items are ineligible);
- Primarily used for business (more than 50%); and
- Acquired from an outside party (items purchased through a relative or businesses/organizations you have a relationship with are not eligible)
To claim the deduction (Form 4562) on your tax return for this tax year, you must purchase and place the item into service before January 1 of next year.
Push Back Invoicing
An easy way to reduce your tax liability is to lower your income. If you’re a service-based business, consider pushing your December invoices to January, if feasible. Just remember, the additional income in January may put you into a higher tax bracket on your tax return for the next year. Before making a decision, speak with a tax professional to determine which will be more beneficial to you.
File Necessary Tax Forms
Although your income tax returns won’t be due until mid-April, several other important tax forms must be filed before the end of the year.
- Form W-2, Wage and Tax Statement
- Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
- Form 941, Employer’s Quarterly Federal Tax Return
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
- Form 1096, Annual Summary and Transmittal of U.S. Information Returns
Keep in mind that these forms will only be required if you have employees or contract workers.
Final Thoughts
By taking control of your small business taxes, you can free up valuable resources to reinvest in your business’s growth, innovation, and long-term success. To ensure you’re maximizing your tax savings and staying compliant with the latest tax laws, consider scheduling a consultation with our team of experienced tax professionals. Our experts specialize in small business taxation and can provide personalized guidance tailored to your unique business needs.