Steal Our Small Business Midyear Tax Planning Guide

Summer is in full swing – our hair is growing faster than the grass with this humidity, the days are longer, and we have entered the second half of the year.

This makes now the perfect time to begin your tax planning and implement adjustments that will reduce your 2024 tax bill and strategically position your business for long-term tax efficiency and financial stability.

We have seen too many small businesses miss out on valuable tax-saving opportunities, which is why we are passionate about educating you with practical, actionable advice that aligns with your specific needs so you have the tools and support necessary to navigate the complexities of tax planning.

Let’s work together to make your business as financially efficient as possible by diving into our key strategies for small businesses to consider!

Establish a Tax-Favored Retirement Plan

If your business doesn’t already have a retirement plan, now is the time to start. Options like a SEP plan or 401(k) allow for significant deductible contributions, reducing taxable income.

For instance, a self-employed individual can contribute up to 20% of their net income, with a cap of $69,000 for 2024.

Setting up a plan before the extended tax return due date can still allow for contributions for the previous year.

Plus, offering a retirement plan can attract and retain quality employees, enhancing your business’s overall stability and growth potential.

Take Advantage of Generous Depreciation Tax Breaks

Current federal income tax rules allow generous first-year depreciation write-offs for eligible assets placed in service during your business’s current tax year.

The Section 179 deduction allows for up to $1.22 million in deductions for qualifying property. This includes most types of personal property used for business and off-the-shelf software. 

First-year bonus depreciation of 60% is also available for new and used property acquired and placed in service in 2024.

This means you could potentially write off a significant portion of asset costs on this year’s tax return, freeing up cash for other investments.

Time Business Income and Deductions for Tax Savings

Strategically timing your business income and deductions can lead to substantial tax savings.

If you expect to be in the same or lower tax bracket next year, deferring income and accelerating deductible expenses can be beneficial.

Conversely, if you expect to be in a higher tax bracket, accelerating income and postponing deductions might be the better strategy.

These moves can help you manage your taxable income more effectively, ensuring you pay the least amount of tax possible.

Proper timing can also help smooth out your cash flow, making financial planning easier.

Maximize the Qualified Business Income (QBI) Deduction

The QBI deduction can be a significant tax saver for owners of pass-through entities like sole proprietorships, partnerships, LLCs, and S corporations.

This deduction allows you to deduct up to 20% of your qualified business income, subject to certain restrictions.

For high-income earners, there are additional limitations, so careful planning is essential.

By maximizing this deduction, you can significantly reduce your taxable income.

It’s important to evaluate how other tax planning moves might impact your QBI deduction to optimize your overall tax position.

Claim 100% Gain Exclusion for Qualified Small Business Stock

Selling Qualified Small Business Corporation (QSBC) stock that you’ve held for more than five years can result in a 100% federal income tax gain exclusion.

This powerful tax benefit applies to QSBC stock acquired after September 27, 2010.

If you own or are considering investing in a business that qualifies, this could mean substantial tax savings upon sale.

Advanced planning is crucial to ensure the stock meets all eligibility requirements. Leveraging this exclusion can significantly enhance the financial return on your investment.

Employ Family Members

Employing family members in your business can be a strategic move to reduce overall tax liability.

Wages paid to your child under 18 are not subject to federal employment taxes and are deductible as a business expense.

This reduces your self-employment tax liability and shifts income to your child’s lower tax bracket.

Ensure that the family member is a bona fide employee and follow standard business practices like keeping time reports and filing payroll returns. This approach can result in substantial tax savings and involve your family in the business.

Take Action Now for a Brighter Financial Future

Implementing these tax strategies can significantly benefit your small business in 2024. By taking proactive steps now, you can reduce your tax bill and position your business for future tax efficiency.

These are just a few of the tax planning moves that could potentially benefit your business for this year. Please contact us >>HERE<< to discuss how we can help you evaluate your best business tax planning options for 2024 and optimize your tax planning.

Together, we can ensure your business is financially efficient and prepared for the future.

The information provided in this blog post was sourced from Thomson Reuters.