As 2024 comes to a close, business owners are facing a tax landscape shaped by economic uncertainty, a new administration on the horizon and many provisions of the Tax Cuts and Jobs Act set to expire at the end of 2025.

Year-end tax planning isn’t just about saving money today—it’s about setting your business up for long-term success. Here’s a comprehensive guide to help you understand potential challenges and opportunities, ensuring you’re prepared for the year ahead.

How the 2024 Election Could Reshape your Taxes

The outcome of the U.S. election may significantly influence the tax policies that take effect in the future. With the potential expiration of key provisions in the Tax Cuts and Jobs Act (TCJA) at the end of 2025, Congress could take action to extend, modify or replace existing rules.

Changes proposed for consideration include adjustments to income tax rates, corporate tax policies and deductions for small businesses. While nothing is set in stone, proactive planning is important to position your business favorably, no matter the outcome.

Key Tax-Saving Strategies for 2024

Taking advantage of current tax rules before potential changes is a smart way to mitigate risks and capture savings.

  • Review your Financial Statements:

Accurate financial records are the foundation of a successful tax strategy. If you’ve fallen behind on bookkeeping, now is the time to catch up. Understanding your company’s income and expenses will help you identify overlooked opportunities for deductions and credits.

  • Take Full Advantage of Business Meals Deductions:

Entertaining clients or hosting team gatherings? Certain business meals may qualify for a 100% deduction if categorized correctly. This small step can add up to significant savings.

  • Leverage Net Operating Losses (NOLs):

If your deductions exceed income this year, you may be able to carry those losses forward, offsetting up to 80% of taxable income in future years. Proper planning ensures you make the most of these rules.

Prepare for Upcoming Changes to the Tax Cuts and Jobs Act

As the TCJA provisions approach their scheduled expiration in 2025, several tax benefits for small businesses may disappear:

  • 20% Qualified Business Income Deduction: This critical deduction is set to sunset unless extended by Congress. Reviewing your business income and planning for 2025 is key.
  • Bonus Depreciation, once at 100% of asset cost, is at 60% for 2024 and ratchets down to 40% in 2025.
  • Individual Income Tax Rates: Lower rates enacted under the TCJA are also scheduled to expire, potentially increasing the tax liability for pass-through entities.

Starting these conversations now can help you lock in tax benefits while they’re still available.

New Reporting Requirements

Starting in 2024, the Corporate Transparency Act (CTA) requires many entities, including certain LLCs, to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This is not a tax filing, but a separate reporting requirement and non-compliance carries severe penalties. Entities formed before Jan. 1, 2024, must file by Jan. 1, 2025. This reporting requirement is currently suspended due to an injunction filed by a Federal Texas District Court. Click here to learn what you need to know about this development and how it might impact your business.

Additional Considerations for 2024 Tax Planning

  • Charitable Contributions: Corporations can deduct up to 10% of taxable income for charitable giving, while flow-through entities are subject to owners’ taxable income limits.
  • Timing of income and deductions: Consideration of tax brackets for this year compared to the future can impact when to recognize or defer income or accelerate expenses for cash basis taxpayers. Prepaying expenses and considering obsolete inventory write-downs are traditional year-end strategies
  • Transactions with Owners: Loans, salaries and distributions between owners and the business have tax implications. Structuring these transactions properly is essential to avoid unnecessary tax burdens.
  • Retirement Planning: The SECURE 2.0 Act expands retirement plan provisions, including credits available for starting a plan. Review your plan provisions to make sure taking advantage of new opportunities to consider as well as reviewing plan costs.
  • Depreciation and Expensing: Understanding depreciation options can help match cash outflow with tax benefits, and impact the after tax cost of asset ownership.
  • State and Local Taxes: Multi-state businesses need to evaluate income sourcing, sales tax obligations and opting into elective taxes that many states have implemented for passthrough entities such as S corporations and partnerships.
  • Disaster Preparedness: Have you updated your disaster recovery plan? Ensuring your financial data is secure can save headaches later.
  • 1099 Deadline: If you work with independent contractors, ensure you’ve collected W-9 forms and are prepared to issue 1099s by the Jan. 31 deadline. Organized record-keeping will prevent penalties and compliance headaches in the new year.
  • Succession planning: Do you have an exit plan for your business? Tax considerations can play an important part of structuring a transaction.
  • Additional Tax Credits: Tax credits directly reduce your tax liability, often yielding more significant savings than deductions. Consider whether your business qualifies for credits such as:
    • Research & Development (R&D) Credit: For businesses investing in innovation or process improvements.
    • Work Opportunity Tax Credit (WOTC): For hiring individuals from certain target groups.
    • Energy-Efficient Tax Credits: For upgrading to energy-efficient equipment or facilities.

Questions?

Proactive tax planning can help you minimize surprises, reduce your tax bill and position your business for long-term success. Contact an Adams Brown tax advisor to schedule a year-end tax planning review.