As a business owner, the end of the year is a critical time to evaluate your financials, reduce your tax liability, and ensure you’re positioned for success in the coming year. One key consideration is making your final estimated tax payment to avoid penalties, but there are many other strategic moves to include in your year-end checklist. Here’s a comprehensive guide to help you wrap up your year on a strong note.
- Final Estimated Tax Payment: Stay Ahead of the Deadline
For many business owners, quarterly estimated tax payments are a reality. The final payment for the year is due on January 15, and staying on top of this obligation is vital to avoid IRS penalties.
To calculate your final payment, you should assess your year-end total income, expenses, and overall profitability to ensure accuracy. Make sure your total estimated payments for 2024 equal at least:
- 90% of your current year’s tax liability, or
- 100% of your previous year’s tax liability (110% if your adjusted gross income exceeds $150,000).
If you’re unsure of your numbers, consult with your tax advisor to ensure accuracy. Overpaying taxes ties up cash unnecessarily, while underpaying can lead to penalties.
- Maximize Deductions and Credits
Business owners have unique opportunities to reduce taxable income through deductions and credits:
- Section 179 Deduction: If you’ve purchased equipment, vehicles, or software for your business, you may be able to deduct the full cost under Section 179, as long as the items are in service by December 31.
- Research and Development (R&D) Tax Credit: If your business has engaged in innovation or product development, consider claiming this credit for qualified expenses.
- Qualified Business Income (QBI) Deduction: Eligible pass-through entities can deduct up to 20% of their qualified business income.
Work with your accountant and financial adviser to ensure you’re not leaving money on the table.
- Review and Prepay Business Expenses
Year-end is an ideal time to review your expenses and look for additional deductions. Consider prepaying for next year’s expenses, such as:
- Office supplies or equipment
- Rent or utilities
- Subscriptions or professional dues
Prepaying for these expenses can help reduce your taxable income for 2024 while setting you up for a smoother start to 2025.
- Plan Employee Bonuses and Benefits
If you’re planning to reward your employees with year-end bonuses, issuing them before December 31 can reduce your taxable income while boosting employee morale. Additionally, evaluate other benefits you can provide, such as:
- Retirement Contributions: Contributing to employee retirement plans like a SEP-IRA or SIMPLE IRA is not only a valuable benefit but also a tax-deductible expense.
- Health Insurance and Fringe Benefits: Enhancing benefits can provide tax advantages while strengthening your team’s loyalty.
- Conduct a Year-End Inventory Review
For product-based businesses, inventory can have a significant impact on your financials. Take the time to:
- Conduct a detailed review of your inventory levels.
- Write down any obsolete or unsellable inventory.
- Consider year-end promotions or sales to clear excess stock.
These actions can help you improve your cash flow and potentially reduce your taxable income.
- Evaluate Depreciation Opportunities
Depreciation can be a valuable tool for reducing your taxable income. Review your fixed assets and determine whether accelerated depreciation methods, like bonus depreciation, are applicable. Discuss with your accountant whether this strategy aligns with your long-term financial goals.
- Assess Retirement Plan Contributions
Retirement plan contributions are a win-win for business owners. Not only do they reduce taxable income, but they also help secure your future. If you don’t already have a retirement plan, consider establishing one before year-end to take advantage of the tax benefits.
For self-employed individuals, SEP-IRAs, SIMPLE IRAs, and solo 401(k)s offer generous contribution limits, allowing you to set aside significant savings while reducing your tax burden.
- Review Tax Withholding and Adjust for Next Year
If you’ve faced surprises during past tax seasons, now is the time to adjust your withholding for the coming year. Use the IRS’s online Withholding Calculator or consult with your tax advisor to ensure you’re withholding the correct amount.
- Organize Financial Records
Start gathering the financial documents you’ll need for tax filing, including:
- Receipts for deductible expenses
- Records of estimated tax payments
- Bank and credit card statements
- Employee payroll records
Being organized now can save you significant time and stress when it’s time to file your tax return.
- Evaluate Your Business Goals for 2025
As you finalize your financials for 2024, take time to reflect on your business goals for the coming year. Are you on track for growth? Do you need to adjust your budget, marketing strategies, or staffing? Year-end is the perfect time to realign your priorities and set actionable plans for the future.
Final Thoughts
For business owners, the end of the year presents an opportunity to fine-tune your financials, maximize tax-saving strategies, and prepare for a successful year ahead. From making your final estimated tax payment to leveraging deductions, credits, and other tools, taking a proactive approach can help you close out the year with confidence.
If you’d like personalized guidance to navigate year-end planning and position your business for success, schedule a PersonalPath Intro Call with Mendel Money Management today. Together, we’ll create a strategy that helps you achieve your business and financial goals.
