Don’t leave money on the table! As 2024 comes to a close, year-end strategic tax planning is key for business owners, side hustlers, and high-income professionals who would like to keep more of their hard-earned money.
Waiting until tax season is too late—these moves must be completed by December 31st to maximize deductions and reduce your taxable income for 2024.Whether you’re looking to lower your tax burden or optimize your business deductions, this guide gives actionable tips to help you get ahead.
1. Optimize Your Retirement Contributions
One of the smartest year-end moves you can make is beefing up your retirement savings. Contributing to retirement accounts not only sets you up for the future but also slashes your taxable income today. Why not lower your taxes and set yourself up for retirement at the same time? 401(k) and IRA contributions are a perfect win-win!
401(k) Contributions:
- Up to $23,000 in 2024, or $30,500 if you’re 50+ years old.
IRA Contributions:
- Up to $7,000 if under 50, and $8,000 for those 50+ years old.
Roth Conversions: Consider converting traditional IRAs to Roth IRAs this year to benefit from potential future tax-free growth, especially if you expect your income to increase later. Remember, the conversion is taxable in the year you do it but offers long-term advantages. Learn more here.
Tip: Join our Tax Advisor Certification Program to gain insights into advanced retirement planning techniques for clients or yourself.
2. Maximize Business Tax Deductions Before Year-End
Need some new tech or equipment? Now’s the time to make those purchases and get the write-off before the year is up. Every expense you make before December 31st could significantly reduce your 2024 tax bill.
Bonus Depreciation:
- Deduct 60% of the cost of eligible new or used assets, including vehicles, placed into service this year. Don’t wait—this benefit drops to 40% in 2025 and phases out entirely by 2027.
Section 179 Deduction:
- Buy an SUV or truck (6,000-14,000 lbs. GVWR), and you can immediately deduct up to $30,500 of the purchase price. Larger trucks or vans with 6-foot beds? You may be able to deduct the full cost if they’re used primarily for business.
Ensure the vehicle is purchased and placed in service by December 31 to lock in 2024 deductions. There are lots of options and issues to consider, learn more here.
Pro Tip: Stack both Section 179 and bonus depreciation to maximize your write-offs. Act now—these deductions only apply if you place the asset into service by December 31, 2024.
3. Put Your Family to Work (Legally!)
Getting family involved in your business can save you money—and it’s totally legal if you follow the rules:
Children under 18:
- Wages paid to your kids are FICA tax-free.
Older children and relatives:
- Use 1099s for freelance-style payments. It reduces your taxable income and helps them build their own income streams or side hustles.
This is a valuable tax strategy for small business owners that so many often overlook, but it’s a simple way to reduce taxes while teaching younger family members entrepreneurial skills.
Time-Sensitive Tip: Make sure all payments are documented and processed by December 31st. Keeping clear records ensures these deductions stick and avoids any IRS headaches.
4. Make Charitable Contributions
Making donations is a great way to give back and reduce your tax bill. Here’s how to do it right:
Cash Donations:
- You can deduct up to 60% of your adjusted gross income (AGI).
Non-Cash Donations:
- Household items, clothes, or other property donated to places like Goodwill are deductible at fair market value—just remember to get a receipt!
Be sure the organization is a qualified 501(c)(3) to ensure your donation qualifies for deductions. This could be Goodwill or Salvation Army. Make sure to get a receipt and check out 7 more tips here on how to maximize this write-off and audit proof the deduction.
Pro Tip: Contributions via credit card before December 31st count for this tax year—even if you pay the bill in 2025.
5. Prepay Business Expenses
Why wait for 2025 when you can lock in your deductions today? Smart businesses leverage this strategy to boost 2024 deductions by prepaying next year’s expenses now.
What Works:
- Expenses like rent, utilities, and service contracts are perfect candidates for prepayment.
Credit Card Hack:
- Even if you swipe now and pay the bill later, you’ll still take advantage of the deduction for 2024.
Pro Tip: Stay sharp with cash flow—stretching too thin can hurt your bottom line. But if your income fluctuates, this strategy can help smooth things out and keep your finances stable.
6. Complete a Roth IRA Conversion
As part of your year-end financial planning, consider a Roth IRA conversion to set yourself up for tax-free growth. Though you’ll pay taxes now, this is a solid move if you expect to retire in a higher tax bracket.
Why a Roth Conversion Makes Sense
- Tax-Free Growth Forever: After conversion, all future gains are tax-free, and you won’t owe Uncle Sam a penny when you withdraw in retirement.
- No Income Limits: Whether you’re earning $40K or $400K, you can convert as much as you want. This makes it a fantastic opportunity for high-income earners.
- Flexibility to Adjust: If you make the conversion before December 31st, you’re locking in this year’s tax rates.
Tax Savings Strategy: With Roth conversions now exempt from required minimum distributions (RMDs), this could be your smartest retirement planning move yet. So if you get gun shy later and/or can’t pay the tax you were expecting, check the ‘reset’ button. Read more here.
7. Manage Required Minimum Distributions (RMDs)
If you’re turning 73 this year, it’s essential to plan your RMDs to avoid costly penalties. SECURE Act 2.0 brought key changes that offer more flexibility:
New RMD Age:
- Starting in 2023, RMDs begin at 73 (and will increase to 75 in 2033). This gives retirees more time to grow their investments tax-deferred
Roth Accounts Exempt:
- As of 2024, Roth 401(k)s and other employer-sponsored Roth plans no longer require RMDs, aligning them with Roth IRAs
Missed RMDs now incur a 25% penalty, which drops to 10% if corrected promptly. Planning withdrawals early ensures you meet deadlines and avoid unpleasant surprises.
Pro Tip: To avoid higher taxes next year, take your first RMD before December 31st rather than delaying until April 1st. If you don’t need the income, use a Qualified Charitable Distribution (QCD) to donate your RMD to charity tax-free.
8. Prepay State Income Taxes
Need a quick way to boost your business tax deductions and lower your federal taxable income? Prepaying state taxes by December 31st might do the trick.
SALT Deduction Cap:
- The State and Local Tax (SALT) deduction is capped at $10,000. This applies to combined state and local income or property taxes, limiting the deduction for high earners
AMT Alert:
- If you fall under the Alternative Minimum Tax (AMT), prepaying state taxes might not provide any federal deduction benefit. Be mindful of how this interacts with your personal tax situation.
Consult a Pro: This strategy works best for small business owners trying to boost business tax deductions and reduce income in a higher tax year. Your CPA can advise if this move aligns with your overall tax strategy.
In Summary,
Year-end tax planning requires action before December 31st to unlock savings. These strategies—from maximizing deductions to optimizing retirement contributions—can significantly reduce your 2024 tax bill. However, every situation is unique, and consulting with a CPA or tax advisor ensures you apply the best strategy for your needs.
