Proven Ways to Reduce Your Tax Bill and Boost Financial Health
As the end of the year approaches, small business owners and self-employed professionals should shift focus to one of the most valuable financial activities: tax planning. Thoughtful, proactive planning before December 31st can help reduce your taxable income, take advantage of deductions and credits, and avoid surprises come tax season.
Whether you’ve had a strong revenue year or faced challenges, this guide outlines the top year-end tax planning strategies to help you legally minimize your tax liability and prepare for a stronger financial future.
1. Accelerate Expenses, Defer Income
A cornerstone of year-end tax strategy is the timing of income and expenses.
✅ Accelerate Expenses:
If you expect to be in the same or lower tax bracket next year, consider accelerating expenses before December 31. This includes:
Paying vendor bills early
Stocking up on supplies
Prepaying rent or utilities
Purchasing equipment or software
✅ Defer Income:
Postpone invoicing or delay end-of-year project payments to January if possible. This shifts the income into the next tax year, reducing your current year’s taxable income.
2. Take Advantage of Section 179 and Bonus Depreciation
Section 179 allows you to deduct the full cost of qualifying equipment and software purchased or financed during the tax year—up to $1,220,000 in 2024. Bonus depreciation allows additional first-year depreciation on new and used assets.
Strategy:
Upgrade machinery, buy new computers, or invest in office furniture before year-end.
Assets must be in service (not just purchased) by December 31.
3. Maximize Retirement Contributions
Contributing to retirement accounts is a win-win—you build future wealth and reduce your taxable income.
Popular retirement plans for business owners:
SEP IRA – Up to 25% of compensation (limit: $69,000 in 2024)
Solo 401(k) – Up to $69,000 combined employee/employer contribution
SIMPLE IRA – $16,000 annual contribution limit + $3,500 catch-up (age 50+)
Tip: Make your contributions before year-end to secure the deduction in the current tax year (depending on plan type).
4. Review Estimated Tax Payments
Underpaying your taxes during the year can lead to penalties. Before year-end:
Review your income and deductions
Recalculate estimated payments using Form 1040-ES
Make an additional payment in Q4 if necessary
Bonus Tip: Pay your state taxes before year-end to claim them as an itemized deduction (subject to SALT cap limits).
5. Harvest Investment Losses
If you have taxable investment accounts, you can use tax-loss harvesting to offset gains:
Sell underperforming stocks or funds before year-end
Use the losses to offset capital gains
Up to $3,000 of excess losses can offset ordinary income
Caution: Be mindful of the wash-sale rule, which disallows the deduction if you repurchase the same or substantially identical investment within 30 days.
6. Review Business Entity Structure
Your current business entity may no longer be the most tax-efficient. Before year-end, meet with a tax advisor to evaluate:
Should you elect S corporation status to reduce self-employment taxes?
Is it time to convert your sole proprietorship into an LLC?
Should your LLC file as an S corp?
The right structure can result in significant tax savings.
7. Pay Bonuses or Owner’s Draws Strategically
If your business had a strong year:
Consider paying employee bonuses before year-end (deductible this year).
Distribute S-Corp owner draws or partner distributions while managing your taxable income.
Strategy Tip: Ensure any draws or bonuses are backed by adequate profits and properly documented to remain compliant.
8. Donate to Charity
Charitable contributions to qualified organizations are deductible if you itemize deductions. Consider:
Cash donations
Donating inventory or equipment
Donor-advised funds (DAFs)
For businesses: Donations may also enhance your brand and support community involvement.
9. Use the Home Office Deduction
If you’re self-employed and use a dedicated space in your home for work, you may be eligible to deduct:
A portion of rent/mortgage interest
Utilities and internet
Repairs and maintenance
Tip: Use the simplified method ($5 per square foot up to 300 sq. ft.) or the actual expenses method, whichever yields the greater deduction.
10. Organize Financial Records and Receipts
One of the most overlooked but impactful strategies is getting organized:
Reconcile bank and credit card statements
Gather all receipts for deductible expenses
Review financial reports for missed write-offs
Digitize records for easier access and audit protection
The cleaner your records, the more deductions you can claim—and the faster your CPA can file your return.
11. Utilize Available Tax Credits
Some of the most valuable tax-saving opportunities come from credits, which reduce your tax liability dollar-for-dollar.
Top year-end tax credits include:
R&D Tax Credit – For innovation and process improvement
Work Opportunity Tax Credit (WOTC) – For hiring individuals from target groups
Energy Efficiency Credits – For eco-friendly upgrades
12. Plan for Next Year’s Tax Strategy
Year-end tax planning doesn’t end on December 31. Use this opportunity to:
Project next year’s income
Set up or adjust retirement contributions
Review payroll strategies
Establish a proactive quarterly tax payment schedule
Final Thoughts: Don’t Leave Tax Savings on the Table
Smart year-end tax planning can lead to thousands of dollars in savings. The earlier you start, the more options you have to make strategic decisions that benefit your business and future.
🚀 Need personalized help with year-end tax planning?
At Tax Alternatives, we specialize in helping small businesses reduce taxes, plan, and finish the year financially strong.
📩 Fill out the form below to schedule a year-end strategy session before December 31st. Let’s make sure you take advantage of every opportunity!
