2024 Last-Minute Year-End General Business Income Tax Deductions
2024 Last-Minute Year-End General Business Income Tax Deductions
Introduction
With 2024 coming to a close, business owners have just one more chance to lower their taxable income before the year is up. Some deductions and tax strategies to take advantage of now can save you a lot when you file your 2024 taxes next year.
In this article, I’ll explore 6 powerful last-minute moves you can make to squeeze out as much of your general business income tax deductions for 2024 as possible. These strategies are easy to implement but can result in outsize tax savings.
Prepay Expenses Using the IRS Safe Harbor
The IRS provides a "safe harbor" rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without any pushback. This rule provides flexibility and certainty around prepaying future bills to accelerate deductions to the current tax year.
For most small businesses, qualifying expenses include:
Lease payments on business vehicles
Rent payments on offices, retail space, equipment
Business insurance premiums
Malpractice insurance premiums
As long as your business is on the cash-basis accounting method and the IRS considers the vendor a "service provider," prepayments to them are likely covered under the safe harbor umbrella.
Stop Billing Customers
If you use the cash-basis accounting method, a simple way to defer income is to temporarily stop billing your customers and patients at the end of December. Then in January, pick up right where you left off with your billing cycles.
This strategy works because, under cash-basis accounting, you don't have to recognize revenue until actual cash is received. As long as you delay sending invoices, you delay when that income becomes taxable.
Some small business owners stop billing entirely for the last two weeks of December. For example, if you typically bill $60,000 in the final 14 days of the year, postponing those billings would reduce this year's taxable income by $60,000.
Purchase Equipment
With bonus depreciation rules still in effect, any equipment, machinery, and furniture purchases you make before December 31 can qualify for very generous first-year write-offs. This can be an impactful last-minute tax reduction strategy.
If your business spends less than $2.62 million on equipment in 2024, you can likely write off the entire purchase price of eligible assets in the year you place them in service using Section 179.
Common eligible asset purchases include:
Computers
Software
Office furniture
Machinery and equipment
Section 179 allows you to expense the full purchase price up to an annual limit of $1,080,000 in 2024.
The bonus depreciation deduction allows you to immediately deduct a percentage of an asset's cost in addition to regular depreciation. For 2024, the bonus depreciation rate is 60% for new and used assets.
Use Your Credit Cards Correctly
Business credit card purchases can help boost last-minute tax deductions, but only if you use them properly. The deductibility rules differ based on your entity type.
If you file Schedule C as a sole prop or single-member LLC, the date of the credit card charge determines deductibility. Therefore, consider putting any planned business purchases on your card before December 31 to accelerate the tax write-off.
If your business is structured as a C corporation, the same general rule applies. Expenses charged to a corporate credit card before year-end are deductible in that tax year.
However, things work differently if you charge business purchases on a personally-owned credit card. In this case, the corporation must reimburse you if you want the company to get the deduction. The reimbursement transaction must occur before December 31.
Don't Assume You Have Too Many Deductions
While some business owners — especially first-timers — are hesitant to claim as many deductions as they can because they fear extra IRS scrutiny, they could be missing out on a tax advantage. Unless you fabricate phony deductions, this thought process usually does more harm than good.
And you should track expenses like a hawk, and claim every legitimate deduction your business is entitled to. If you think it's 'too good to be true' you're missing out on write-offs because of it.
Tax evasion is not responsible for tax planning. If your deductions are allowable, and you’ve documented them properly, there’s no reason to leave potential tax savings on the table.
Conclusion
All types of business owners can use the six strategies discussed in this article to reduce their taxable income before December 31, 2024.
When you file your 2024 taxes early next year, prepaying expenses, deferring revenue, purchasing equipment, properly using credit cards, maximizing deductions, and completing business property renovations will all translate to major tax savings.
The great thing about these last-minute moves is that they require little effort compared to the potential financial payoff. Stick to the one or two strategies that best suit your tax situation and business needs.