Top 16 Business Tax-Saving Tips for 2024
Tax season can be one of the most stressful times of year for small business owners. Many of us tend to wait until the last minute, increasing our stress rather than preparing throughout the year. But with the right tips, tax season can be much more manageable. Here are the top 16 tax-saving strategies for businesses in 2024 to help you prepare and save.
1. Automate Payroll to Avoid Costly IRS Penalties
Handling payroll manually or with outdated systems can lead to costly penalties. With about a third of companies facing penalties every year for payroll issues, consider using automated payroll tax software or a service provider like Tax Shack. This ensures accurate calculations, timely deposits, and filing—all backed by personal support if issues arise.
2. Separate Business and Personal Finances
Mixing personal and business finances is a common mistake that complicates tax filing. Open dedicated business bank and credit accounts to make expense tracking straightforward and protect yourself in case of an audit. Clear documentation is vital for claiming legitimate deductions.
3. Create a Streamlined Filing System
Staying organized throughout the year can simplify tax season. Use folders or digital filing systems to organize receipts, invoices, and other important documents by month or category. Set aside a couple of hours each month to update your records, reconcile accounts, and ensure everything is in order before tax season.
4. Use Accounting Software Like QuickBooks Online
Accounting software can make managing finances easier by automatically tracking income, expenses, and cash flow. QuickBooks Online is a popular choice for small businesses, and it can provide your accountant with direct access to run reports and file taxes. Tax Shack offers bookkeeping services to help you keep everything on track.
5. Leverage Section 179 Deduction for Equipment
The Section 179 deduction allows businesses to fully deduct the cost of equipment purchases up to $1.16 million in 2024. This deduction can help you write off expenses immediately, rather than over several years, which can be a valuable tax-saving strategy for growing businesses.
6. Establish a Retirement Plan for Tax Benefits
A retirement plan offers several tax advantages, including tax-deductible contributions and tax-free growth on invested assets. Options like SEP IRAs, SIMPLE IRAs, and 401(k) plans are particularly beneficial for small business owners and can also help you attract and retain talent.
7. Choose the Optimal Business Structure
The structure of your business affects your taxes. While LLCs offer pass-through taxation, C corporations are subject to double taxation on profits. The best structure depends on your income level and business goals, so consult with a tax professional to choose the structure that offers the most savings.
8. File Taxes on Time to Avoid Penalties
Filing on time can save you money by avoiding late penalties. The failure-to-file penalty can reach up to 25% of unpaid taxes, so even if you can’t pay your tax bill, file your return on time to minimize penalties. Many penalties can be appealed or reduced under certain circumstances, so check with the IRS if you need assistance.
9. Review and Take Responsibility for Your Return
Even if you hire a tax professional, review your tax return carefully before signing. By law, you are responsible for the accuracy of the return, not the preparer. Understand what’s being reported about your business and ask questions to clarify anything that’s unclear.
10. Maintain Detailed Accounting Records
Accurate records are essential for tax planning and deduction claims. Reconcile accounts monthly, review financial statements, and address discrepancies promptly. Good records make tax filing easier and help reduce the likelihood of errors.
11. Donate Excess Inventory for a Deduction
If you have excess or obsolete inventory, consider donating it to receive a tax deduction. Donations of goods over $500 require additional documentation, but this can be an effective way to reduce inventory expenses while gaining a tax benefit.
12. Forecast Cash Flow and Plan for Taxes
Regularly updating cash flow forecasts allows you to set aside money for taxes, estimate tax obligations, and prepare for upcoming payments. Use cash flow forecasting to avoid surprises and ensure that your tax obligations won’t disrupt other business operations.
13. Make Estimated Tax Payments
If your business income isn’t subject to withholding, make estimated tax payments to avoid interest and penalties. These quarterly payments are often missed by new small business owners but are crucial to avoiding large, unexpected tax bills.
14. Stay Updated on Tax Law Changes
Tax laws change frequently, impacting deductions, credits, and rates. For example, the corporate tax rate remains at 21%, but there are potential adjustments for specific industries and situations. Regularly consult your tax professional or the IRS to stay informed about changes that may impact your business.
15. Deduct Start-Up Costs
Any expenses incurred before the first sale are considered start-up costs and can’t be fully deducted immediately. However, you can deduct up to $5,000 in your first year, with the rest amortized over 15 years. This deduction helps offset some of the initial expenses involved in starting a business.
16. Claim the Home Office Deduction
If you work from home, you may be eligible for a home office deduction. To qualify, your home office must be used exclusively for business purposes. This deduction can cover a portion of your rent or mortgage, utilities, and other home expenses related to your work.
Tax Shack is here to help you navigate tax season smoothly and maximize your savings. Give us a call at 818-365-1040 to learn more about how we can help with your accounting, payroll, and tax filing needs.
Maximize your deductions and reduce tax season stress with Tax Shack!
