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Time for year-end tax planning for your small business

Now that Labor Day has passed, it’s the perfect moment to start planning your year-end tax strategy. Taking proactive steps now can help lower your small business taxes for both this year and next. One effective method is to defer income and accelerate deductions. This means you might want to shift some expenses into this year while holding off on income to reduce your tax bill.

Are You Expecting a Higher Tax Bracket Next Year?

If you think you’ll be in a higher tax bracket next year, consider reversing your strategy. You might pull income into 2024 when rates are lower and delay deductible expenses until 2025 to offset that higher income.

Here are Some Quick Tips to Save on Taxes:

1. Estimated Taxes

Don’t forget to make your last two estimated tax payments to avoid penalties. The third quarter payment is due on September 16, 2024, and the fourth quarter payment is due on January 15, 2025.

2. Qualified Business Income (QBI) Deduction

If your business isn’t a corporation, you might be eligible for a deduction of up to 20% of your qualified business income (QBI). For 2024, if your taxable income exceeds $383,900 (or half that for other taxpayers), the deduction may be limited based on factors like your business type, W-2 wages paid, and the basis of qualified property. You could potentially increase your deduction by deferring income or accelerating deductions to stay below these thresholds. Consulting with us can help you navigate these complex rules.

3. Cash vs. Accrual Accounting

More small businesses can now use the cash method of accounting for federal tax purposes. To qualify, your average annual gross receipts must not exceed $30 million over the last three years. This method allows you to defer income by delaying billing, paying bills early, or making prepayments.

4. Section 179 Deduction

Consider making purchases that qualify for the Section 179 expensing option. For 2024, you can deduct up to $1.22 million for eligible expenses, with an investment ceiling of $3.05 million. This applies to most depreciable property, like equipment and software. The great news? You can claim a full deduction even if you place qualifying assets in service just before the year ends.

5. Bonus Depreciation

For 2024, you can generally claim a 60% bonus first-year depreciation deduction for qualifying improvement property and machinery. This deduction is available for both new and used items placed in service this year, even if they are only in use for a short time.

Stay Informed on Upcoming Tax Law Changes

These strategies can help you save money on taxes. It’s essential to stay updated on tax law changes that could impact your business. Many tax breaks, including the QBI deduction, are set to expire at the end of 2025. Plus, future elections could lead to new tax laws or the repeal of existing breaks.

Contact your nearest Padgett office to check eligibility and receive personalized support for your small business needs!