Tax Saving Strategies for Business Owners
Business owners could benefit from saving on taxes by the end of 2024 as the year comes to a close. Tax regulations have evolved drastically in recent years and will likely further change in the future. In order to work towards keeping savings as high as possible while maintaining compliance with all regulations imposed by IRS notices, look at the following seven end-of-year tax-reduction techniques.
Starting your entrepreneurial journey can be incredibly rewarding, but maneuvering through the maze of tax laws might feel like a steep climb. Understanding which deductions you’re eligible for and employing smart tax-saving strategies can transform this daunting task into a fulfilling experience.
The key is to approach your taxes with the same level of strategy and planning as you do with other aspects of your business. In the upcoming sections, we’ll unravel the mysteries of the tax world and share seven practical tips that can lead to significant tax savings, helping you keep more of your hard-earned money. These tips aren’t just theoretical; they’ve been proven to work by countless successful entrepreneurs. So, let’s simplify the seemingly complex and ensure the financial well-being of your business.
As a small business owner or self-employed individual, understanding tax obligations can be a complex process. However, with the right strategies, you could save significantly on your tax bill. Here are seven tips to help you save on taxes and keep more of your hard-earned money in your pocket.
Please note that we are not tax or accounting professionals and you should always discuss these strategies with your tax professional before trying them.
1. Leverage Section 179 Expensing
Section 179 of the Internal Revenue Service (IRS) tax code allows businesses to reduce taxable income by deducting the full purchase prices of qualifying equipment and/or software purchased or leased during the tax year. The deduction limit for 2024 is now $1.09 million, again with a $2.89 million phase-out threshold. You can purchase new equipment, computers, technology software or office furniture, and reduce your taxable income by as much as $1.09 million.[^1]
For instance, Section 179 gives a small firm in IT called Small Tech Solutions the ability to keep most of its tax saving when buying new servers and making office improvements.
2. Maximize Retirement Plan Contributions
Contributing to retirement plans can secure your future, and it also provides an immediate tax break: for 2024, you can contribute a maximum of $23,000 per employee to a 401(k) plan, and a maximum of $7,500 in catch-up contributions if you are 50 or older. If you’re self-employed, start or maximize contributions to a solo 401(k), SEP IRA, or SIMPLE IRA.
Jane, the freelance graphic designer, puts as much into her Solo 401(k) each year as she can comfortably afford, and this lessens her taxable income by thousands of dollars.
3. Utilize the Research and Development (R&D) Tax Credit
The R&D Tax Credit is a federal tax credit available to those who invest in innovation. Qualified research expenses (wages, supplies and contract research costs) are deductible for tax purposes, and the amount of the deduction is increased by the portion of the expenses that can be used for the credit. Keep accurate records or look to an outside consultant to ensure you’re taking as much advantage of the credit as possible.
Example: through the R&D Tax Credit, GreenTech Innovations, a startup involved in sustainable energy solutions, saves money by crediting its tax liability with millions of dollars from its research investment into making solar panels more efficient.
4. Defer Income and Accelerate Deductions
A fundamental principle of tax planning is deferring income and accelerating deductions. Moving recognition of income into 2025 and accelerating the deduction of deductible expenses into 2024 reduces taxable income, but that is less meaningful for individuals who expect to be in a higher tax bracket next year than it is for those who expect to be in a lower bracket.
Example: a consulting firm defers billing for December projects until January while paying rent in December to reduce the tax obligations of that year. Alternatively, a business may make large equipment purchases in the current year to take advantage of immediate tax savings.
5. Review and Optimize Your Tax Entity Structure
Redesigning your business structure can save you a ton on taxes. Depending on the type of business, you might choose to structure your business activity as an S-Corporation, C-Corporation or an LLC. A tax consultant can advise you on what structure would save you more on taxes, depending on your business needs and future growth.
An eCommerce retailer consults a tax professional and restructures her company, an LLC, transforming it into an S-Corporation that enjoys pass-through taxation and avoids high self-employment taxes.
6. Implement a Health Savings Account (HSA)
Contributions, growth and qualified medical withdrawals are all tax-free, so employers offering HSAs (high-deductible health plans) are able to pass along the triple tax benefit to employees. In 2024, contributions can be as high as $3,900 per individual and $7,800 per family, with an additional $1,400 catch-up contribution for anyone aged 55 or older.
For example, if an employer contributes the maximum allowable amount to an HSA in each year of the plan, the total medical expenses paid out in a given year will be lower than what the employees and the company would have paid if they had instead switched to an account-based plan such as HSAs, HRAs or voluntary plans.
7. Take Advantage of Bonus Depreciation
This tax law enables 80 percent bonus depreciation for qualifying new and used property placed in service before the end of 2024, resulting in upfront deductions that reduce taxes and accrue cash flow.
**Example:** A logistics company buys new delivery trucks and equipment, and uses Bonus Depreciation to deduct very large parts of those costs in year one.
Conclusion
In the spirit of doing things right, things that will help your business stay healthy in 2025 and beyond, expect to keep learning throughout the year and plan well in advance with year-end tax planning. To the extent possible, incorporate the ideas I’ve outlined here to save on taxes, drive as much cash as legally possible into your business, and increase your ability to be competitive.
But before taking any action, consult with your tax professional about whether the strategies in this article are right for your business and your personal situation, and about any changes to the law and regulations that will apply to your situation.
At Alignment Online Marketing we use these strategies for our own business and for your business we develop a custom strategy for your total online marketing and SEO to help your business grow and thrive! Contact us today for your free assessment and consultation.
