As founders approach the end of the year, it’s crucial to take stock of financial and business strategies to ensure you’re fully prepared for what’s ahead. To provide expert guidance on these matters, we’re featuring insights from Thomas Wright, CPA, MST. With over 32 years of experience, Thomas specializes in helping closely held businesses optimize their financial strategies and minimize tax costs, particularly in industries such as professional services, manufacturing, and software development.
The Top 5 Must-Dos for Founders
1. Have Your Books in Order
It’s the time of year to conduct tax projection analysis and devise tax optimization strategies. However, without your books in order, effective analysis and planning may not be possible. Organize your financial records now to avoid unnecessary stress later.
2. Evaluate Your Entity Structure
Did you know that the structure of your business can significantly impact your tax bill? Consider whether your current structure aligns with your goals and offers the best tax benefits. Consulting with a CPA can help you determine if changes are necessary.
3. Make Elections If This Is Your First Year of Operation
For new businesses, critical “elections” regarding tax treatment must be made early on. These decisions can have long-term implications, both favorable and unfavorable. Ensure you’re fully informed about your options.
4. Understand the New BOIR Requirement
This year introduces the Business Ownership Interest Reporting (BOIR) requirement for LLCs. All applicable entities must file by December 31, 2024, with some exceptions. Sole proprietorships that are not LLCs are exempt. Don’t overlook this new filing obligation.
5. Be Aware of Year-End Business Strategies
Strategic moves before the year’s end can help optimize your tax situation. For example, you might time bonuses and executive compensation strategically to maximize tax benefits — delaying payments if your company has a net operating loss or accelerating them to reduce taxable income in the current year. Similarly, consider prepaying rent or supplier expenses if you operate under the cash system, or committing to contracts under the accrual method for better expense recognition. Writing off obsolete inventory and investing in clean energy property are additional ways to leverage year-end opportunities to save on taxes.
New Retirement Plan Opportunities
The SECURE 2.0 Act of 2022 expands provisions for retirement plans to benefit both employers and employees. In 2023, the credit to start a retirement plan for employees increased to 100% of startup costs for employers with 50 or fewer employees. Additional credits are available for contributions during the first five years of a plan’s existence.
Employers without existing retirement plans can now offer a starter 401(k) or safe harbor 403(b) plan. These plans feature automatic enrollment for employees at a deferral rate of 3–15%, with maximum contributions of $6,000 in 2024 (plus $7,000 for employees aged 50 and older).
Tax Advantages Through Depreciation and Expensing
The Tax Cuts and Jobs Act (TCJA) continues to provide generous depreciation and expensing benefits for businesses. Section 179 Expensing allows for an investment limit of $3,050,000 in 2024, with a dollar limit of $1,220,000.
Taxpayers can also claim a 60% first-year depreciation allowance for qualifying property placed in service during 2024. This percentage decreases annually and is set to expire in 2027. Businesses are encouraged to act now to maximize savings under these provisions.
Clean Commercial Vehicles Tax Credit
Businesses and tax-exempt organizations looking to invest in sustainable solutions may qualify for clean vehicle tax credits of up to $40,000. This credit applies to qualified plug-in hybrid, electric, or fuel cell vehicles. The credit amount is calculated based on the type of vehicle: 15% of the purchase price for plug-in hybrids and 30% of the purchase price for fully electric or fuel cell vehicles. These credits are capped at $7,500 for vehicles weighing less than 14,000 lbs. and up to $40,000 for heavier vehicles. With transportation costs often being a significant expense, this incentive provides a great opportunity to offset the investment in eco-friendly vehicle options.
Final Thoughts for Founders
Preparing for year-end can feel overwhelming, but taking action now ensures your business is positioned for success in the coming year. By organizing your financial records, evaluating your entity structure, and leveraging the tax advantages and incentives available, you can minimize tax costs and set your company up for long-term growth. Don’t hesitate to consult with financial professionals to make informed decisions tailored to your business needs.