As 2024 comes to a close, both individuals and businesses should focus on proactive tax planning to maximize deductions, minimize liabilities, and ensure compliance. Effective year-end tax strategies can make a significant difference in financial outcomes, especially in a year marked by a return to relative economic stability and potential changes on the horizon.
In this detailed guide, Gulla CPA outlines key year-end tax planning strategies for individuals and businesses to help you prepare for 2025 and beyond.
The Importance of Year-End Tax Planning
Year-end tax planning is not just about reducing taxes owed, it’s about crafting a comprehensive financial strategy. By taking action before December 31, you can:
- Optimize cash flow.
- Reduce taxable income.
- Take advantage of expiring tax benefits.
- Align your financial goals with tax-saving opportunities.
With the potential sunset of the Tax Cuts and Jobs Act (TCJA) in 2025, this year’s planning takes on added significance. Current tax brackets, deductions, and credits may change significantly, making it essential to capitalize on existing provisions before they expire.
Strategies for Individuals
1. Deferring Income
Delaying income can push taxable earnings into the next year, especially if you anticipate being in a lower tax bracket in 2025. Examples include:
- Self-employed individuals: Delay invoicing clients until January 2025.
- Employees: Request end-of-year bonuses to be paid in 2025.
This strategy allows you to reduce your 2024 taxable income and take advantage of lower brackets in the future.
2. Accelerating Deductions
Increasing your deductions before the year ends can lower your taxable income. Key strategies include:
- Charitable Contributions: Make donations to qualified organizations. Consider bunching contributions to exceed the standard deduction threshold.
- Medical Expenses: If your unreimbursed medical expenses approach 7.5% of your adjusted gross income (AGI), schedule elective procedures or purchase eligible medical supplies before December 31.
- Mortgage Payments: Pay January’s mortgage payment in December to maximize interest deductions.
3. Retirement Account Contributions
Take advantage of tax-advantaged retirement accounts to lower your taxable income:
- Contribute to traditional IRAs, 401(k)s, or HSAs.
- Max out contributions to retirement accounts, which can reduce your AGI and provide long-term financial security.
- For those 50 or older, consider catch-up contributions to maximize savings.
4. Capital Gains and Losses
If you’ve sold investments at a profit this year, offset those gains by selling underperforming assets. Known as tax-loss harvesting, this strategy can reduce your taxable income while allowing you to rebalance your portfolio.
Be cautious of the wash-sale rule, which disallows losses if you repurchase the same or a substantially identical security within 30 days.
5. Green Energy Credits
Take advantage of available energy credits, including:
- Energy Efficiency Home Improvement Credit: Covers some of expenses for upgrades such as energy-efficient windows, doors, and insulation.
- Residential Clean Energy Credit: Applies to installations like solar panels or battery storage systems.
Act quickly, as these credits could be reduced or eliminated under new legislative priorities.
6. State and Local Tax (SALT) Deduction Strategies
The $10,000 cap on SALT deductions remains in effect. However, some states allow pass-through entity owners to claim deductions at the entity level, bypassing the cap. Check with Gulla CPA to see if this option applies to your situation.
Strategies for Businesses
1. Accelerated Depreciation and Expensing
Businesses can take advantage of generous depreciation rules for equipment and property:
- Bonus Depreciation: Currently at 60% for 2024, but this will phase out by 2027.
- Section 179 Expensing: Deduct up to $1,220,000 for qualifying property, subject to a $3,050,000 investment limit.
Consider purchasing assets before year-end to maximize these deductions.
2. Timing Income and Expenses
- Businesses operating on a cash basis can defer income and accelerate expenses to lower taxable income for 2024. This can include:
- Prepaying rent, supplies, or contractor fees.
Delaying client invoices until 2025.
3. Employee Benefits and Retirement Plans
- Offering or expanding employee retirement plans provides dual benefits: reducing taxable income and enhancing employee retention. Key options include:
- Starter 401(k) Plans: A new provision under SECURE 2.0 allows small businesses to set up simplified plans for employees.
Catch-Up Contributions: Employers can match catch-up contributions for employees aged 50 and older.
4. Charitable Contributions
Businesses can deduct charitable contributions made to qualifying organizations, reducing taxable income while supporting the community. Consider non-cash contributions, such as inventory or equipment, which may provide additional benefits.
5. Inventory Management
Review your inventory for obsolete or slow-moving items. Writing off inventory before year-end can reduce taxable income while cleaning up your balance sheet.
Take Action Before December 31
Year-end tax planning is an essential step in managing your finances effectively. With the help of Gulla CPA, you can take advantage of available opportunities and set the stage for a successful 2025.
Contact us today to schedule a consultation and let our experts guide you through this critical process.
