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Home Resources Articles Business Tax Strategies for the New Year*

Business Tax Strategies for the New Year*

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Business Tax Strategies for the New Year*

February 27, 2024   /   Tami McMoran

Tax planning is a crucial component of business success. Because as the old saying goes, it’s not how much money you make that counts, but how much money you keep.

With tax season approaching, now is a good time to think about business tax strategies. Here are three tax strategies to consider with your CPA for tax season and throughout the year.

1. Take Advantage of Business Deductions

Taking advantage of legitimate business deductions may be the best way to lower taxable income and reduce your tax bill. Here are a few of the most valuable business deductions:

  • Business operating expenses — These include rent or mortgage payments, utilities, office equipment and supplies, advertising expenses, insurance premiums and professional service fees.
  • Employee benefits — You may be able to deduct contributions your business makes to employee health insurance, health savings accounts (HSAs), flexible spending accounts (FSAs) and retirement plans, including 401(k)s and SEP IRAs.
  • Business travel expenses — Expenses related to transportation, lodging and meals may be deducted if you or your employees travel away from your home or main place of work for longer than an ordinary day’s work. These expenses must be ordinary and necessary, not lavish or extravagant.

2. Utilize Tax Credits

Tax credits may be even more valuable than deductions because they reduce business taxes on a dollar-for-dollar basis. Here are a few of the most valuable business tax credits in 2024:

  • Research and Development (R&D) Tax Credit — This credit was made permanent in 2015 and also modified to benefit small businesses. However, only three out of 10 small business that qualify for the R&D tax credit claim it. A wide range of activities qualify for the R&D credit including developing new products, enhancing existing products and streamlining manufacturing processes.
  • Work Opportunity Tax Credit (WOTC) — This credit has been extended until the end of 2025. Youmay be able to claim the WOTC if you hire qualifying employees from certain target groups, including veterans, ex-felons, the disabled and individuals receiving public assistance. The credit is based on the employee’s first-year wages.
  • Energy Efficiency Investment Tax Credit (ITC) — The Inflation Reduction Act (IRA) includes a 30% investment tax credit (ITC) for businesses that purchase and install solar energy systems before 2033, as well as a $5 per square foot tax credit for energy efficiency improvements that lower a business’ utility bills.
  • Retirement Plan Tax Credit — Your small business may be able to claim a tax credit of up to $5,000 over three years for eligible startup costs if you establish a new qualified retirement plan. This includes a SEP, SIMPLE IRA or 401(k) plan. You must have 100 or fewer employees to qualify for the credit.

3. Capture Bonus Depreciation … While You Still Can

Asset depreciation is a tax break that mayenable small businesses to deduct the cost of certain property and equipment over a number of years. Part of the cost is deducted each year until the cost is fully recovered at the end of the term.In 2002, Congress enacted bonus depreciation to encourage business investment after 9/11. This allowed businesses to deduct 50% of the cost of eligible assets in a single tax year, providing a big tax savings during that year. The Tax Cuts and Jobs Act changed this in 2017 to allow businesses to deduct 100% of the cost of eligible property placed in service before January 1, 2023.

Bonus depreciation started phasing out last year, but it’s still available for three more years. You may be able todeduct 60% of the cost of eligible property placed in service in 2024, 40% of the cost of eligible property placed in service in 2025 and 20% of the cost of eligible property placed in service in 2026. Bonus depreciation disappears in 2027 unless Congress acts to renew it.

A wide range of assets qualify for bonus depreciation, including business equipment and machinery, vehicles, computers and office furniture. Buildings qualify for regular depreciation but not bonus depreciation, though certain building improvements may qualify for bonus depreciation. Land and collectibles do not apply for any depreciation.

Start Planning Now

Now is the time to get ready for tax season and plan business tax strategies for the upcoming year. Be sure to consult with your accountant or CPA before implementing these or any other tax strategies for your business.

*We are not tax experts. It’s essential to consult with your accountant or CPA before implementing these or any other tax strategies for your business.

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