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Tabitha Swanson
November 11, 2024
5 underused strategies to improve your tax position
By Tabitha Swanson, Swanson Group
The end of another year is upon us, and before it comes to a close, now is the time to get organized and identify strategies to reduce your state and federal tax burden.
What follows are more complicated, underutilized strategies to discuss with your accounting professional that could end up saving you significantly when it comes to tax time.
1. Establish a tax-favored retirement plan
If your business doesn’t already have a retirement plan, now might be the time to take the plunge as a last minute effort to minimize your tax implication. At this stage in the year, consider contributing to a SEP, or a Simplified Employee Pension plan. This allows a business owner to contribute the same percentage to their own and their employees plan. This end-of-year tactic can be a win-win to minimize your tax burden and reward employees’ for a year of great work.
2. Take advantage of generous tax breaks for adding fixed assets
For property placed in service in 2024, ask your accountant about Section 179 deductions. This will allow for maximum write offs available to you in the first year, for both depreciation and certain property expenditures. Keep in mind, first-year bonus depreciation is 60% for qualified new and used property, this value is scheduled to decrease to 40% in 2025.
3. Time business income and deductions strategically
The traditional strategy of deferring income into next year while accelerating deductible expenditures makes sense if you expect to be in the same or lower tax bracket next year. On the other hand, if you expect to be in a higher tax bracket in 2025, take the opposite approach. That way, more income will be taxed at this year’s lower rate instead of next year’s higher rate.
4. Maximize the Qualified Business Income deduction
This deduction can be up to 20% of a business owner’s income, which is scheduled to sunset at after 2025. Maximizing the deduction before it disappears could make the most sense for you in 2024.
5. Employ family members
This is a useful strategy to reduce overall tax liability as the employer can deduct the wages and benefits as a business expense. In addition, wages paid to your minor children are not subject to federal employment taxes and can be offset by up to $14,600 (your unmarried child’s maximum standard deduction for 2024). However, your family member must be a bona fide employee and paid a reasonable amount based on the actual work performed.
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