5 Ways To Cut Your Company's 2024 Tax Bill If you want to save, April is not the time to talk about taxes — it's now.
By Gene Marks Edited by Maria Bailey
Key Takeaways
- Want to reduce your 2024 tax bill? You need to take these CPA-backed steps today.
Opinions expressed by BIZ Experiences contributors are their own.
April is not the time to talk about taxes. Now is the time. Why? Because we're about halfway through the year. We can make decisions and have enough time to take action. What kinds of action? If you're running a business, here are five suggestions. My suggestion is to meet with your accountant now and discuss these five strategies for reducing your 2024 tax bill.
Buy equipment now — not later
The 2017 Tax Cuts And Jobs Act created an enormous first-year depreciation deduction for businesses purchasing and placing into service eligible equipment such as machinery and equipment, office furniture, computers and computer software, vehicles used for business purposes and certain property improvements. Starting last year, the benefit began to decline. In 2023, businesses were allowed to deduct 80% of a first year's purchase, with the remaining amount being amortized over the life of the asset. In 2024, the first-year deduction percentage dropped to 60% up to $1,220,000; the following year, it dropped to 40% before it was eliminated entirely.
Your action: Accelerate capital purchases into 2024 to maximize this first-year tax deduction before the benefit declines even further.
Dispose of inventory and write off receivables
Many of my clients carry old inventory that was purchased with the highest of hopes but never sold. Other clients carry old receivables—some as much as six months old—because they still believe they can collect on what's owed. While I admire their optimism, this overconfidence often gets in the way of pragmatic cash management. Businesses can deduct the cost of obsolete inventory and uncollectible receivables as long as they're written off the books.
Your action: Create policies for obsolete inventory and overdue receivables. Dispose of and write off inventory that hasn't sold in more than a year. Write off receivables that remain uncollected after six months. That way, you can carry a cleaner balance sheet, maximize space in your warehouse and reduce your tax bill.
Give someone an opportunity
The Work Opportunity Tax Credit can allow a business to offset as much as $9,600 against their company's income or payroll taxes when they hire someone who's been out of work for more than six months, off welfare, formerly incarcerated or recently out of the military, among other eligibilities. The calculation needs to be done in advance on Form 8850, Pre-Screening Notice and Certification Request and filed with the IRS for approval. This credit expires at the end of 2025.
Your action: Focus on the groups of workers that enable your company to be eligible for this credit when you search for your next employee. This way, you can find the next great employee and save taxes.
Start a 401(k) plan
A recent survey revealed that as few as 24% of businesses have a 401(k) retirement plan for their employees. Thanks to the 2022 SECURE 2.0 Act, your business can get tax credits of up to $15,000 for creating a 401(k) plan and additional tax credits for eligible businesses that match their employees' contributions. For an owner, the more your employees and your company contribute to your employees' retirement accounts, the more you can also contribute (and save on your taxes) without violating any discrimination tests that are required by the Fair Labor Standards Act. Having a generous 401(k) plan is also a powerful benefit to use to attract good workers.
Your action: Create a 401(k) plan for your company this year, and make sure to take advantage of the SECURE Act's tax credits to offset these costs. Encourage your employees to contribute and then maximize your contributions as you're able.
Related: 7 Steps to Reduce Your Taxes by 10-40% Permanently
Get credit for research
The Research and Development Tax Credit is available for all businesses, and recent legislation now allows businesses to use this credit to offset as much as $500,000 of their employer payroll taxes in lieu of their income taxes. The credit is based on a formula that takes a percentage of eligible research and development expenses, which includes employee wages, contract expenses, supplies and other materials costs.
Your action:
Hire an accounting firm that specializes in this credit and have them analyze your expenses to determine how much would be eligible to include in the calculation and then - assuming it makes financial sense - provide the documentation and perform the necessary calculations to leverage this credit on your 2024 tax returns.
Related: 7 Steps to Reduce Your Taxes by 10-40% Permanently
Many of the tax deductions and credits created by the 2017 Tax Cuts and Jobs Act will expire at the end of 2025, which could create huge challenges for many businesses. For now, there's little to be done until the country's future political leadership is determined. However, the above tax moves are very much available for businesses to consider this year. Considering the significance of our tax burden, they should be discussed with our accountants and implemented where possible. Do it now. Don't wait!
