As we approach the end of the year, it’s not just the holiday season that’s creeping up on us – tax season is right around the corner too! If you’re a business owner, this is the ideal time to take a few strategic steps to save on your 2024 taxes. We’ve put together six easy, impactful strategies that can help reduce your tax bill, free up cash flow, and set your business up for financial success in 2025.
Here’s what to know and, more importantly, what to do before the clock strikes midnight on December 31.
1. Prepay Key Expenses with the IRS Safe Harbor Rule
This tip is especially beneficial if you’re a cash-basis taxpayer. Under the IRS safe harbor rule, cash-basis taxpayers can prepay and deduct certain business expenses up to 12 months in advance without any issues from the IRS. This includes expenses like:
- Rent for offices or business spaces
- Lease payments on business vehicles
- Insurance premiums for your business
For example, let’s say you pay $3,000 in monthly rent. By mailing a $36,000 check on December 31 to cover all of your 2025 rent, you can claim that entire amount as a deduction on your 2024 taxes. Your landlord might not receive it until January, but that’s okay because your deduction counts for this year as long as it was paid before year-end.
Pro Tip: To prove the deduction if the IRS questions it, use USPS tracking or certified mail to document when the payment was sent.
2. Stop Billing Until January
This next strategy is one of the easiest ways to reduce taxable income for cash-basis businesses: delay billing customers or clients until the first week of January. When you delay sending invoices, any income generated from these transactions won’t be recognized until 2025.
Let’s look at an example: A dentist who usually bills clients weekly decides to hold off on billing for December. By sending out those invoices the first week of January, the income generated from December treatments won’t hit his 2024 income, effectively lowering his taxable income for this year.
Note: This strategy might not be right for everyone, especially if cash flow is tight, but it can be a game-changer if you’re in a good position financially.
3. Buy Business Equipment Now
If you’re considering purchasing new office equipment, machinery, or furniture, doing so by December 31 can benefit your taxes. Thanks to Section 179, you can write off the full purchase amount for qualifying equipment – think computers, desks, furniture, and more.
This rule even applies to used equipment, as long as it’s purchased and put into service before the year ends. Alternatively, you can take a bonus depreciation deduction, which allows a 60% write-off for new or used items in 2024.
Planning Note: Keep in mind that increased deductions from equipment purchases could reduce other tax benefits, like the Section 199A deduction, which offers tax relief for pass-through entities.
4. Use Your Business Credit Cards Wisely
Purchases made with a business credit card can be deducted in the year they are charged, which means any business-related expenses charged by December 31 will qualify as 2024 deductions.
For sole proprietors and single-member LLCs, this is straightforward: simply charge business expenses on your personal or business credit card, and they’ll be deductible as of the charge date. However, if you operate as a corporation and the card is in your personal name, ensure the corporation reimburses you before year-end. Otherwise, the deduction will be delayed until the reimbursement is made.
5. Don’t Worry About Taking “Too Many” Deductions
Some business owners worry that taking too many deductions could “raise red flags” for the IRS, but if your expenses are legitimate, there’s no reason to hold back. Always claim the deductions you’re entitled to, especially if you’re running at a loss. A net operating loss (NOL) for 2024 can be carried forward, reducing taxable income in future years.
This loss carryforward can provide a much-needed cash infusion for your business down the road. Think of it as a strategic investment in your company’s future that comes with an IRS-approved benefit.
6. Take Advantage of Qualified Improvement Property (QIP) Deductions
If your business owns non-residential real estate and you’ve made any improvements to its interior – whether it’s a retail store, office, or other business property – these costs might be eligible for deductions. Under current tax law, Qualified Improvement Property (QIP) can be written off faster than other types of improvements, with a 15-year depreciation timeline instead of 39 years. You can also use Section 179 to fully expense qualifying QIP or take a 60% bonus depreciation.
To claim these deductions, make sure the improvement was completed and in use by December 31.
Final Takeaways: Don’t Wait Until It’s Too Late
With a little planning, these strategies can make a big difference on your tax bill, freeing up cash that can go back into your business instead of toward taxes. Here’s a quick recap:
- Prepay qualifying expenses to accelerate deductions.
- Hold off on billing until January to push income into 2025.
- Purchase needed equipment before December 31 to maximize write-offs.
- Charge business expenses to your credit card to get deductions now.
- Claim every eligible deduction – don’t worry about claiming “too many.”
- Complete qualified improvements on your property before year-end to take advantage of faster write-offs.
If you’re unsure how these apply to your unique situation, reach out to a tax professional who can help you put these strategies into action. Taxes might be complicated, but taking steps to lower them doesn’t have to be.
End your year with the confidence that you’re making the best moves for your business. Here’s to a prosperous new year with a little extra cash in your pocket!