2024 year-end tax & financial planning for small business

As we wrap up 2024, it’s a great time to review certain tax and financial planning matters and discuss opportunities to reduce the tax burden for your small business. With a new administration on the horizon and many provisions of the Tax Cuts and Jobs Act (TCJA) set to expire soon, some form of change is likely. We will continue to closely monitor any potential tax legislation and will update you accordingly.

Upcoming sunset of TCJA provisions

Unless Congress acts, several key provisions under the Tax Cut & Jobs Act(TCJA), that was enacted in 2017 will expire on December 31, 2025, impacting your tax situation starting in 2026.

One major change will be the elimination of the 20% deduction on qualified small business income. That, coupled with the changes in the individual income tax rates, may have a large impact on your tax obligation. Therefore, assessing your businesses income and deductions in 2024 and 2025 could be crucial to capitalizing on existing tax benefits.

Analysis of your financial statements

Look at where your business is positioned with income and expenses to close out the tax year. This may mean getting caught up on your bookkeeping to have a better picture of where your tax situation stands. We can help you analyze your financial statements for tax savings and planning opportunities.

Timing of fixed assets purchase

You may benefit from making these fixed asset purchases before the end of the year. Many purchases can be completely written off by businesses in the year they are placed in service. Plus, there are tax-favorable rules that permit qualified improvement property to qualify for 15-year depreciation and, therefore, also be eligible for 60% first-year bonus depreciation. The percentage for first-year bonus depreciation is set to decrease to 40% for 2025 unless Congress passes legislation. Thus, it’s important to consider the timing of your capital purchases.

Business meals

As you enter the holiday season and have more social gatherings with your customers and employees, keep in mind the rules for business meal deductions. There are circumstances where certain business meals may qualify for a 100% deduction. It is important to properly categorize your expenses.  

Net operating losses (NOLs)

If your deductions for the year are more than your income for the year, you may have an NOL. In general, you can use an NOL by deducting it from your income in other year(s), but it is limited to 80% of your taxable business income in any one year. We can advise you on any potential tax benefits and limits.

Energy tax incentives

There are many tax incentives to encourage businesses to decrease their carbon footprint and become more environmentally sustainable.

When certain criteria are met, businesses may be able to claim tax credits for items such as:

·         Electricity produced from certain renewable sources (including geothermal, solar and wind facilities)

·         Energy efficient home improvements (only available to eligible contractors and manufactured home manufacturers)

·         Alternate fuels

In addition, businesses may be eligible for a tax deduction based on the energy savings generated for qualifying energy efficient commercial building property. The rules are complex, and careful research and planning now can be beneficial.

Digital assets and virtual currency

Digital assets are defined as any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.

The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services or having such currencies that you hold as an investment, generally have tax impacts –– and the IRS continues to increase its scrutiny and reporting requirements in this area.If you hold and transact with digital assets, you should be aware of a safe harbor that allows for the allocation of unused basis before the end of the year if you used the universal method to determine the cost of those assets.

Employee retention credit (ERC

The IRS has continued to warn employers to be cautious of third parties taking improper positions related to ERC eligibility, as claiming the credit inaccurately can result in severe consequences.

Charitable contributions

For tax year 2024, the maximum allowable contribution deduction is limited to 10% of a corporation’s taxable income. Flowthrough entities’ charitable contributions may be limited based on the owner’s taxable income. Careful planning is needed to capture the tax benefit potential of charitable contributions.

Transactions between a business and its owners

Transactions between a business and its owners carry significant tax considerations. This includes aspects such as loans, distributions and salaries.

State and local tax considerations

Businesses have numerous state and local tax matters to consider for compliance and planning purposes, including where income and sales are subject to tax, sourcing of income and the application of elective taxes that many states have for partnerships and S corporations.

Retirement plans

Have you revisited your company’s retirement plan lately? Recent legislation has provided new opportunities to consider. Let’s look at the many retirement savings options to make sure that you are taking advantage of tax deductions as well as providing ways for employees (and owners) to save for retirement.    

Estimated tax payments

Let’s review estimated tax payments and assess any liquidity needs.

Whether it’s working towards a tax-optimized business succession plan or getting answers to your tax and financial planning questions, we’re here for you. Please contact our office today at 813-489-0295 to set up your year-end review. As always, planning ahead can help you minimize your tax bill, avoid surprises, and position you for greater success.