Small Business Tax Planning: 8 Ways to Save On Taxes in 2024
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Last Updated: 01/11/2024
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Check out these business tax-saving tips employers can use in 2024 to reduce taxes and help guide their employees.
Filing business taxes is an annual responsibility that can't be ignored. Owners and employees also have to file their returns. While you may be wondering about small business tax saving tactics when you file your business tax return, your employees may wonder how to save on taxes themselves. For employers, options include maximizing deductions and credits, sheltering revenue, and contributing to employee benefit plans. Planning with the following business tax-saving tips may help you and your staff yield yearly savings.
8 Tax Saving Tips for Your Business
Throughout the year, you may think, "How do I maximize tax breaks on my business tax return?" Please don't wait until it's time to file your business tax return to act. You can rein in your tax liability with several strategies you can use now. Note that you may want to consult your company tax expert for more information.
Take Every Deduction and Credit Allowed
Most, but not all, your business outlays can generate tax deductions or credits that effectively offset the tax on your profits. Check what's available to you and determine whether you qualify for these write-offs.
Create or Contribute to a Qualified Retirement Plan
You can gain a current tax deduction for your contributions while building up tax-deferred income for retirement. If you have employees, the plan must cover those eligible to participate. The plan can require or allow employer contributions and may permit employees to make salary contributions pre-tax or after-tax. Depending on the type of plan, its participants, and your contributions, you may qualify for one or more tax credits for setting up and contributing to the plan. Moreover, having a qualified retirement plan can improve your workers' financial security.
Use an Accountable Plan for Reimbursing Employee Business Expenses
You can reimburse employees for travel expenses, use of their personal vehicle for business, internet access costs when working remotely, and other costs to produce tax savings. The business gets to deduct the expenses to the extent otherwise allowed, but employees are not taxed on the reimbursements. These reimbursements are not subject to employment taxes. IRS Publication 463 describes accountable plans and their use.
Review Your Business Structure
How you have set up your business under state law, such as a limited liability company or a corporation, impacts the tax treatment of income and expenses for the business and owners. Changes can be made when desirable to achieve both business and tax results, such as lower tax rates on profits. A sole proprietorship might incorporate to give the owner personal liability protection and the opportunity to have income tax withholding from a salary, which can relieve the owner of making estimated tax payments.
Consider Health Insurance and Dependent Care Options for Employees
The payment of premiums for employees in a group health plan is deductible or may even qualify for a tax credit. Instead of a group plan, consider making tax-deductible reimbursements to employees under various health reimbursement arrangements (HRAs). If it fits your company, establish a Section 125 benefit plan, allowing employees to pay medical, dental, vision, and other expenses with pre-tax dollars up to an annual limit. A similar plan can be set up to cover dependent care costs up to a set limit. A Section 125 flexible spending account saves employees and employers FICA taxes that would otherwise be due on wages contributed to the accounts, plus employees may save federal, state, and local income taxes.
Review Post-Year-End Tax Elections
Just because the year has ended does not mean tax savings opportunities have ended. A business that purchases equipment has several choices on how to write off the cost on the business tax return; the deduction must be made when the return is filed. The cost of business driving can be deducted using the actual costs involved or relying on an IRS-set rate.
Hire a Tax Professional
If you don't already use an experienced tax preparer (one who keeps abreast of complex and fluid tax laws), it's a good idea to find one. The cost of tax-deductible professional fees may be modest compared to the tax savings you may reap and the tax traps you may avoid.
Make Sure Recordkeeping Is Accurate
While most business expenses may be deductible or generate a tax credit, subject to various limitations, you may lose out on legitimate write-offs without good books and records. No deduction can be claimed for travel expenses or charitable contributions without required substantiation. Good records are essential in case the IRS questions any of your write-offs.
Tax Law Changes for 2024
While you may be focused on preparing your 2023 return, many people will want to understand tax changes that have occurred as a result of legislation and how this could impact their 2024 returns that are filed in 2025 as well as 2024 estimated taxes (the first installment of which is due April 15, 2024, or April 17 in Maine and Massachusetts). A few notable items include the following:
- Inflation adjustments: Income tax brackets, eligibility for certain tax deductions and credits, and the standard deduction have been adjusted to reflect inflation. This means that the standard deduction on the 2024 return is:
- $29,200 for married couples filing jointly and surviving spouses.
- $14,600 for individual taxpayers and married individuals filing separately.
- $21,900 for taxpayers filing as head of household.
- An additional standard deduction amount for those ages 65 and older and another for those who are blind.
- Green energy actions: If you purchase a new or previously owned plug-in electric or fuel cell vehicle from a dealer and qualify for a tax credit, you can "sell" it to the dealer, effectively reducing your cost for the vehicle.
- Retirement plan distribution changes: SECURE Act 2.0 made several changes taking effect in 2024. The starting age for beginning required minimum distributions is 73 for those who reach age 72 after 2022, and there are no longer any RMDs for owners of designated Roth accounts (part of 401(k)s). Plans can permit participants to take emergency distributions up to $1,000 once a year without penalty. Small employers might want to adopt "starter 401(k) plans," funded solely by employee contributions. And employers can match student loan repayments as if employees had contributed these amounts to the plan.
How Can Business Owners Help Employees Save on Taxes?
Employers want to help their employees in every way possible, including assistance with tax savings. Consider helping workers reduce what they owe the IRS throughout the year by:
- Adopting automatic enrollment for 401(k) plans. Their pre-tax contributions reduce reportable income, which means they have a potentially lower income tax bill. Employers may be eligible for a tax credit for using this plan arrangement.
Offering deferred compensation arrangements. They enable employees to postpone the receipt of bonuses or other designated amounts—and the income taxes on them—until retirement.
- Reminding employees to use up flexible spending account funds (FSA). These accounts let employees set aside pre-tax money to offset healthcare or childcare expenses. As an employer, you can opt for the IRS-permitted grace period, allowing workers to spend their 2023 account balances up to March 15, 2024. Alternatively, you can offer a limited healthcare FSA carryover of unused amounts from 2023 to 2024.
Plan for Ways To Save on Taxes for Small Businesses in 2024
Tax planning is a year-round activity that will pay off when you file your business tax return. Fortunately, the start of the year is a great time to begin implementing the many small business tax strategies available. Tax changes that became effective on January 1, 2024, can mean even more significant business tax savings. Work with a tax services expert to help identify and maximize money-saving opportunities.