As the year winds down, it’s time to take control of your tax strategy and ensure you’re setting your business up for success in 2024. With the right approach, you can make significant savings, optimize your deductions, and plan for the future. Whether you had a booming year or are preparing for a more modest one, these smart tax moves can help you finish the year strong.

Here are 10 essential year-end tax strategies every business owner should consider before the clock strikes midnight on December 31st:

1. Review and Adjust Your Business Structure

Had a strong year? It may be time to revisit your business structure. Many business owners start as LLCs for simplicity, but as income grows, switching to an S-Corp can help reduce self-employment taxes. This move allows you to pay yourself a salary (which incurs payroll taxes) while distributing the remaining profits as dividends, which aren’t subject to self-employment tax.

Tip: Not sure if this move is right for you? Let’s assess your 2023 performance and project how this shift could impact your 2024 taxes.

2. Take Advantage of Pass-Through Entity (PTE) Tax Election

If your state allows it, electing to pay your state income tax at the entity level could help you avoid the $10,000 cap on state and local tax (SALT) deductions for federal tax purposes. This election can significantly lower your taxable income, especially for high-earning business owners.

Tip: States that offer PTE tax elections are expanding, so check if this option is available in your area—and if it’s the right fit for your business.

3. Maximize Your Qualified Business Income (QBI) Deduction

The 20% QBI deduction allows many business owners to deduct up to 20% of their qualified business income. However, there are limits based on your total income, wages, and property investments. Make sure your business is structured to take full advantage of this deduction. If you’re nearing the income threshold, there are strategies you can implement to stay under the cap.

Tip: We’ll help you review your wages and assets to ensure you’re making the most of this valuable deduction.

4. Leverage Depreciation While It’s Still Generous

Changes are coming to the depreciation rules, so 2023 may be your last chance to fully maximize them. Section 179 allows businesses to deduct the full purchase price of qualifying equipment or software purchased during the year. Bonus depreciation, which allows for immediate expensing of assets, is being phased out after 2023. Consider making large equipment purchases now to take advantage of these rules.

Tip: Need help deciding if an equipment purchase makes sense before year-end? We can help you weigh the benefits.

5. Max Out Your Retirement Contributions

There’s no better way to secure your future while reducing your taxable income. For 2024, business owners can contribute up to $22,500 to a 401(k), or $30,500 if you’re 50 or older. Retirement contributions not only reduce your tax liability but also ensure long-term financial security.

Tip: Explore SEP IRAs or Solo 401(k) options to significantly increase your contributions—and your tax savings—before year-end.

6. Ensure Payroll and Compensation Compliance

If you operate as an S-Corp, paying yourself a reasonable salary is essential for IRS compliance. Failing to do so can raise red flags during an audit. Also, consider issuing bonuses to your employees before year-end. Bonuses reduce your taxable income while rewarding your team for a job well done.

Tip: Need guidance on setting a reasonable salary or issuing bonuses? Let’s map out a compensation plan that keeps you compliant and maximizes your tax benefits.

7. Explore Advanced Deduction Strategies

Some overlooked but powerful strategies can enhance your deductions:

Hire Your Children: If they work in your business, you can pay them up to the standard deduction amount tax-free, while reducing your business’s taxable income.

The Augusta Rule: Rent your home to your business for up to 14 days a year and enjoy tax-free rental income.

Prepay Business Expenses: For cash-basis businesses, prepaying expenses like rent, utilities, or office supplies before year-end can help lock in deductions for 2023.

Unreimbursed Partner Expenses (UPE): Partners can deduct business expenses they personally paid for, but didn’t get reimbursed for, through the business.

Tip: Let’s identify which of these advanced strategies fits your business and will save you the most before year-end.

8. Maximize Tax Credits

Tax credits can offer substantial savings by directly reducing your tax bill. Don’t miss out on the Research and Development (R&D) Tax Credit if you’re investing in new technologies or processes. The Work Opportunity Tax Credit is another powerful incentive if you’re hiring employees from certain groups, such as veterans or individuals from economically disadvantaged backgrounds.

Tip: Reach out to explore which credits you qualify for and how to take full advantage of them.

9. Defer Income for Strategic Tax Planning

If you anticipate a lower income year in 2024, consider deferring some income into the new year. Delaying invoicing or pushing payments into January could help reduce your taxable income for 2023, spreading the tax burden across two lower-income years.

Tip: Let’s discuss how income deferral can work for your specific situation and keep your tax bill in check.

10. Review Your Financials and Plan for 2024

The end of the year is a crucial time to get your books in order. Reviewing your income, expenses, and tax obligations now allows you to catch any missed deductions or errors. It also gives you a head start on planning for 2024, ensuring you enter the new year with a solid financial plan and no surprises when tax season hits.

Tip: We offer year-end financial reviews to make sure you’re fully prepared and positioned for success in the new year.

Take Control of Your Tax Strategy Now

Year-end tax planning isn’t just about cutting costs—it’s about optimizing your financial strategy for growth and long-term success. At Tavola Group, we specialize in helping business owners save more, plan smarter, and grow stronger. Don’t leave money on the table. Let’s create a tax plan tailored to your unique business needs.

Do you need help on implementing these?  Contact us today to schedule a consultation!