Business owners, it’s not too late to save money on 2024 taxes

My smartest clients are always thinking ahead. And the smartest accountants I know urge their clients to plan ahead on their taxes. With two months left in 2024, here are few tax moves to consider that may save you money.

Mitchell Gerstein, a certified public accountant and senior tax adviser at Bala Cynwyd’s Isdaner & Co., recommends taking the maximum retirement plan contributions where possible. Some plans to consider, he said, are a simplified employee pension (SEP-IRA), profit-sharing, or a 401(k).

The SECURE 2.0 Act offers generous tax credits to help eligible employers establish new retirement plans and help offset the cost of matching their employees’ contributions.

“Retirement plans can be a powerful tool for tax savings, both for business owners and employees,” Gerstein says.

The maximum 401(k) plan contribution this year is the lesser of $23,000 or 100% of the business owner’s compensation, with an additional $7,500 catch-up contribution for those over 50.

Business owners that implement a 401(k) plan should also be aware of nondiscrimination test requirements, which ensure that highly compensated employees aren’t unfairly favored by the employer’s retirement plan.

SEP-IRA and profit-sharing plan contributions can be as much as $69,000 or 100% of the participant’s compensation.

Health insurance costs are projected to increase by as much as 9% next year. But Ray Minich, a certified public accountant based in Doylestown, says you may be able to use this increase to save on taxes. He recommends contributing as much as possible to your employees’ group health insurance plan, which may reduce payroll and Medicare taxes for the employer and employee.

“So instead of giving an employee a raise, you should put more into their health insurance contribution,” he said.

Even though the deduction has decreased since the expiration of the 2017 Tax Cuts and Jobs Act, there are still significant opportunities to write off the cost of your company’s capital expenditures.

Businesses can deduct the value of a purchase in the year it was placed in service — when it’s first available for the business to use. For 2024, the limit is $1.22 million, with a phaseout starting at $3.05 million in qualifying equipment. Bonus depreciation, which can be applied after that deduction limit is reached, allows businesses to deduct 60% of the cost of qualifying assets in 2024.

“These are powerful tax-saving tools for small and medium-sized businesses, allowing them to invest in equipment and technology needed to grow without waiting to realize the full tax benefits,” said Gerstein.

One thing that always frustrates accountants is when clients don’t pay their estimated taxes timely.

“I’ve got people who walk in here and they write a check on April 15 with their extension for their entire tax bill and they’ll wonder why they got a $10,000 penalty,” Minich said. “That penalty is like taking dollar bills, putting it in your grill outside and burning it.”

You’re responsible for paying in 110% of your prior year taxes or 90% of your current year taxes.

According to Gerstein, the Inflation Reduction Act and other recent legislation provides tax credits for installing energy-efficient equipment, renewable energy sources, and sustainable building practices. It also includes tax credits for purchasing new and used electric fleet vehicles, he noted.

The act also provides a tax deduction to businesses that make energy-efficient upgrades to commercial properties. Deductions of up to $5 per square foot are available for energy-efficient improvements that reduce energy use by at least 50%.

Businesses that are currently sole proprietorships (where they report their income on a schedule to their individual tax return) may benefit from becoming a pass-through entity like an S corporation or partnership, Minich says. Pass-through entities may save by using the qualified business income deduction, he said, although it may expire at the end of 2025.

“You may be able to reduce your self-employment taxes and take advantage of additional business deductions for yours and your employees’ salaries,” he said.

Many businesses opt to take the standard mileage rate of 67 cents per mile as tax deduction, but Gerstein says bigger deductions may be available. Business owners should consider actual vehicle expenses used for business purposes, such as gas, repairs, maintenance, depreciation, and insurance.

“Remember to keep detailed records of your business mileage, dates, and purposes for each trip,” he said. “Choose the method that provides the larger deduction.”

But, Gerstein noted, if a business uses the actual expense method one year, it must use that method for that specific vehicle each year following.

If you own your business with a spouse, take a close look at how you’re allocating your earnings. If one owner is able to report a greater share of compensation than the other, Minich says, the business may be able to lower its employment taxes after a compensation limit is reached. And there are also future benefits.

“Say there’s a husband and wife who jointly own a business that makes $120,000 a year,” he said. “If you’re able to allocate more income to one person over the other, then that could increase that person’s Social Security income in the future.”