For many businesses, the fourth quarter is about more than closing sales or hitting revenue targets—it’s also about leveraging tax benefits to reduce liabilities and plan for a prosperous year ahead. Making these small but effective tax-based changes can make a significant difference in a company’s bottom line. Whether you’re a small business owner or managing a larger enterprise, there are several tax-saving strategies you can implement now to help maximize your financial health going into 2025.
Let’s start with tax laws which are always evolving. Because of this, staying ahead of upcoming changes is crucial for business owners. It’s important to be aware of tax benefits that may expire by the end of this year or during 2025. These changes can be influenced by shifts in the political landscape and the priorities of a new administration. “Staying informed about changing tax laws is essential for every business owner,” says Sharon Lechter, CGMA, Financial Literacy Expert, and NYT Best-selling author. “Understanding what benefits might be expiring allows you to take proactive steps that can have a significant impact on your tax bill.”
One of the most effective ways to reduce your taxable income is to invest in necessary equipment and capital assets. Through the Section 179 deduction, businesses can deduct the full cost of qualifying assets in the year they are put into service, rather than spreading out the deductions over several years. For 2024, the limit is set at $1.22 million. The maximum deductible amount begins to decrease if more than $3,050,000 worth of property is placed in service making it a substantial opportunity for businesses looking to upgrade their equipment or technology infrastructure. For SUVs the 2024 Section 179 deduction is limited to $30,500. “Investing in capital assets not only helps you take advantage of tax deductions, but it also positions your business for growth,” notes Lechter. “It’s a win-win strategy.”
Additional first year depreciation, called bonus depreciation, is also available and is generally taken after the Section 179 spending cap is reached, and will phase down from 80% in 2023 to 60% in 2024. While Bonus Depreciation is mandatory, you may elect out of it if appropriate. It’s good to review these options with your tax advisor so you make the choices that best serve you.
Lechter also suggests getting rid of excess and obsolete inventory which ties up capital that could be used elsewhere. According to IRS guidelines, if inventory is deemed unsellable, it can be written off as a tax deduction. Another classic year-end tax strategy involves deferring income and accelerating expenses to shift taxable income into the next year. For example, you might delay sending invoices until January or prepay expenses like rent, office supplies, or marketing services for the coming months. This tactic is particularly beneficial if you anticipate being in the same or a lower tax bracket next year.
“The ability to defer income or accelerate expenses is one of the simplest yet most effective tax planning strategies,” explains Lechter. The IRS allows for certain expenses to be deducted when paid, so consider using a company credit card for last-minute purchases before December 31st to maximize your deductions for 2024.
As an employee, consider contributing to employee retirement plans, such as a SEP IRA or a 401(k). Contributions to these plans are tax-deductible and can significantly lower your taxable income. For 2024, the contribution limit for 401(k) plans is $23,000 (or $30,500 if you are age 50 or older), and $7000 for an IRA making it a great way to reduce your tax burden.
As an employer, you may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan (like a 401(k) plan.) There are certain requirements based on the number of employees you have. Remember a tax credit allows you to reduce your tax liability dollar-for-dollar.
If you are self-employed, a simplified employee pension (SEP) IRA can be funded with 20% of self-employment earnings with a maximum of $69,000 for 2024.
For business owners who work from home, the home office deduction can provide significant tax savings. To qualify, you must use a portion of your home exclusively and regularly for business purposes. This deduction allows you to write off a portion of your rent or mortgage interest, utilities, insurance, and other home-related expenses. Use Form 8829 to figure out the expenses you can deduct. There is also a simplified option which provides for a deduction of $5 per square foot, up to a maximum of 300 square feet.
Your business structure has a direct impact on your tax obligations, and it’s worth consulting a tax advisor to ensure you are set up for optimal tax savings. For example, if you’re currently operating as a sole proprietor or partnership, you might benefit from transitioning to an S-Corp or LLC to take advantage of pass-through taxation.
Finally, a new law to be aware of concerns certain domestic and foreign entities registered to do business in the U.S. These entities are now required to report on their beneficial ownership information (BOI). Existing entities or those created or registered before Jan. 1, 2024, must file by Jan. 1, 2025. There are substantial penalties for late filing. Go to https://boiefiling.fincen.gov/ for more information.
The end of the year is an excellent time to take stock of your financial strategies and make adjustments to set your business up for success in 2025 and beyond.
Sharon Lechter is an internationally renowned financial literacy expert, five-time New York Times bestselling author, entrepreneur and mentor. Her books include Rich Dad Poor Dad, Three Feet from Gold, Think and Grow Rich for Women, and How Money Works For Women. From hosting retreats, welcoming visiting guests or just enjoying nature, she loves spending time at her ranch, Cherry Creek Lodge.
