With Labor Day behind us, it's time to take proactive steps that may help reduce your small business's taxes for this year and next. A common strategy is to defer income and accelerate deductions to minimize taxes. Additionally, bunching deductible expenses into this year or next can maximize their tax value.

However, reversing these strategies may be more beneficial if you expect a higher tax bracket next year. For example, you might pull income into 2024 to be taxed at lower rates and defer deductible expenses until 2025, when they can offset higher-taxed income. Here are some key tax-saving strategies to consider as year-end approaches:

Estimated Taxes

To avoid penalties, make the last two estimated tax payments. The third quarter payment for 2024 is due on September 16, 2024, and the fourth quarter payment is due on January 15, 2025.

Qualified Business Income (QBI) Deduction

Taxpayers other than corporations may qualify for a deduction of up to 20% of their QBI. For 2024, the deduction may be limited if taxable income exceeds $383,900 for joint filers (half that amount for single filers). The deduction is subject to limitations based on factors like W-2 wages paid by the business or the value of qualified property (such as machinery).

You may be able to increase or preserve your QBI deduction by deferring income or accelerating deductions to stay below the threshold. Additionally, increasing W-2 wages before year-end could also boost the deduction. As these rules are complex, we recommend consulting with us before making any moves.

Cash vs. Accrual Accounting

More small businesses are now allowed to use the cash method of accounting for federal tax purposes. To qualify, companies must meet a gross receipts test, which for 2024 is satisfied if your average annual gross receipts over the past three years don't exceed $30 million. Cash method taxpayers can potentially defer income by holding off on billing clients until next year or accelerating deductions by paying bills early or making prepayments.

Section 179 Deduction

Consider making purchases that qualify for the Section 179 expensing option. For 2024, the expensing limit is $1.22 million, with an investment ceiling of $3.05 million. This applies to most depreciable property (except buildings), including equipment, software, and interior improvements. Even if you place assets in service by the last days of 2024, you can still claim a full deduction for the year.

Bonus Depreciation

For 2024, businesses can also claim a 60% bonus depreciation deduction for qualifying property, including used machinery and equipment. As with the Section 179 deduction, the total bonus depreciation is available even if the assets are only placed in service in the final days of 2024.

Upcoming Tax Law Changes

These strategies can help you save on taxes before the year ends. Additionally, many tax laws are scheduled to change in the coming years, including the expiration of the QBI deduction at the end of 2025. The outcome of future elections could also lead to new or repealed tax breaks.

Plan Ahead with Brinker Simpson

At Brinker Simpson & Company, we specialize in customized tax planning strategies that help businesses maximize deductions and minimize tax liabilities. Contact us today to discuss year-end tax strategies tailored to your small business and to stay informed about upcoming changes that could affect your financial future.