As the holiday season hits its peak, it’s easy to get swept up in the festive hustle. But one thing you’ll want to add to your ever-growing to-do list before the year ends is getting your finances in order for the upcoming tax season. As an entrepreneur, investor with over 35 years experience as a CPA who’s seen it all, let me tell you, leveraging strategies like deductions, tax deferral, and retirement plans can reduce your tax liability significantly, sometimes by as much as 30% annually. That’s a substantial amount of hard-earned money that could stay in your pocket rather than going to the IRS and we all want that, right?
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With changes to tax brackets and deductions set to take effect in 2025, proactive planning now could save you a financial headache later. Unfortunately, I’ve seen far too many individuals and business owners alike wait until it’s too late, missing out on valuable opportunities. Don’t be Cinderella left without a tax plan when the clock strikes midnight on December 31!
Let’s start with business owners who have unique opportunities to strategically reduce tax liabilities while setting themselves up for future success. The top tips I suggest include:
For Business Owners: Unlock Maximum Tax Savings
Plan for Future Tax Changes: With potential changes in tax laws, I can’t stress enough the importance of reviewing the incentives and benefits that may expire at the end of 2024 or during 2025. This could include deductions for research and development, energy-efficient upgrades, or other industry-specific items. While it is now expected that many of these tax incentives will be extended by the new administration, it is important to talk with your tax advisor now to stay on top of these shifts and how they impact your long-term financial planning. Staying ahead of these changes can give you a competitive advantage while protecting your bottom line.
Invest in Equipment and Capital Assets: Section 179 and bonus depreciation allow you to deduct the full cost of qualifying purchases—like machinery, software, or vehicles—in the year they’re placed in service. If your business needs new equipment or upgrades, making these purchases now means you can offset a significant portion of your taxable income. This strategy is especially useful for businesses planning for growth or those with aging assets in need of replacement. This is a great win-win tax move; you get the equipment you need and you reduce your tax liability.
Review and Write Off Obsolete Inventory: Holding onto unsellable inventory can hurt your financials. I know you’re busy but make time to take a good look at your stock and plan on writing off items that are outdated, damaged, or otherwise unsellable. Not only does this lower your tax bill, but it also frees up storage and capital for inventory that generates revenue.
Defer Income and Accelerate Expenses: Another favorite strategy of mine is shifting income into 2025 by delaying client billing or accepting payments after the first of the year. If you are a cash basis taxpayer, this is one of the easier ways to help lower your 2024 tax liability. At the same time, prepaying expenses like office supplies, marketing services, or utility bills ensures you maximize current-year deductions. This strategy requires careful planning, so coordinate with your tax advisor or be very mindful of your cash flow to avoid any shortages.
Maximize Retirement Contributions: Investing in your team is not only money well spent, it’s a smart tax move, too! Before the year ends, establish or enhance retirement plans for your employees, such as 401(k)s or SEP IRAs. Contributions reduce taxable income and demonstrate your commitment to your team’s future. For sole proprietors or small business owners, this is also a valuable tool for securing your personal retirement while cutting taxes.
Claim the Home Office Deduction: If you work from home, you can claim a proportionate deduction for the area exclusively used for business activities. This includes a share of utilities, rent, property taxes, and mortgage interest. This one requires specific calculations so be sure you maintain detailed records and clear boundaries for this space to avoid complications during an audit.
Evaluate Your Business Structure: Last but certainly not least, evaluate your business structure. Your business’s legal structure plays a significant role in how much tax you pay. A pass-through entity like an LLC or S-Corp may offer more favorable treatment if you have high personal income. Conversely, a C-Corp might be better for businesses reinvesting profits. Review your current setup with your tax advisor to ensure it aligns with your growth goals and minimizes your liabilities.
For Individuals: Protect Your Earnings
Even if you don’t own a business, there are plenty of steps you can take to lower your tax bill and make the most of your finances before the year ends.
Defer Earnings: Employees may not have control over their pay schedules, but negotiating to defer a year-end bonus until January can reduce your current-year taxable income. Self-employed individuals or freelancers have even more flexibility—delaying invoices or client payments until late December ensures income is received in 2025, potentially lowering your 2024 tax bracket.
Make Charitable Donations: Contributions to qualified charities not only support causes you care about but also provide significant tax savings. Donating appreciated assets, such as stocks or real estate, offers additional benefits by avoiding capital gains taxes while still earning a deduction. Charitable giving also allows you to align your financial goals with your values. Here in Arizona we have the benefit of a dollar-for-dollar tax credit which is something I recommend all my clients take advantage of.
Max Out Retirement Contributions: For 2024, you can contribute up to $7,000 to an IRA—or $8,000 if you’re over the age of 50. These contributions reduce taxable income and grow tax-deferred, helping you secure your financial future. For those with access to employer-sponsored plans like 401(k)s, review your contributions and ensure you’re taking full advantage of any matching opportunities. You never want to leave free money on the table!
Harvest Investment Losses: If you’ve had a tough year in the markets, you can sell underperforming assets to offset gains from other investments. This technique, known as tax-loss harvesting, helps reduce your overall taxable income. Be mindful of the IRS’s “wash-sale” rule, which prohibits repurchasing the same security within 30 days to claim the loss. As always, I recommend consulting with a tax professional when in doubt.
Prepay Certain Expenses: Boost deductions for 2024 by prepaying expenses such as mortgage interest, property taxes, or tuition bills. By accelerating these payments, you can lower your taxable income this year while still maintaining your financial goals. If you know you’re earning more this year than you will next, this is an especially smart move.
Spend Down Flexible Spending Accounts (FSAs): Many FSAs operate on a “use-it-or-lose-it” basis, meaning funds not used by year-end are forfeited. Review your eligible medical and dependent care expenses to ensure you spend down these accounts. If necessary, schedule appointments or make qualified purchases before the deadline. While this isn’t a tax tip, per se, it’s money you don’t want to see disappear at the stroke of midnight.
Bottom Line: Planning Leads to Savings
As the year winds down, taking control of your finances is one of the best gifts you can give yourself. Whether you’re a business owner who wants to reduce overhead or an individual looking to stretch your paycheck further, these strategies can help you achieve those goals. Taxes shouldn’t be a guessing game, they’re too important and can have too much of an impact on your bottom line. Consult your tax advisor to ensure you’re making the most of your opportunities. Proactive planning today means less stress and more savings tomorrow.
For more expert financial tips and resources, visit my website.
Author: Sharon Lechter, an internationally renowned financial literacy expert, is a five-time New York Times bestselling author, entrepreneur, and mentor. She advised two US Presidents on financial literacy and is a member of the AZ Financial Literacy Task Force. Her books include Rich Dad Poor Dad, Three Feet from Gold, Think and Grow Rich for Women and How Money Works For Women. She loves spending time at her ranch, Cherry Creek Lodge in the Tonto National Forest. From hosting retreats, welcoming visiting guests or just enjoying nature, she loves sharing it with others. Visit sharonlechter.com for more information.
