As we are halfway through the year, there's still time to implement strategies that can significantly reduce your tax burden. Here are actionable moves you can make before December 31st.
Accelerate Business Expenses
Equipment Purchases: Section 179 allows you to deduct up to $1,160,000 (2023 limit) for qualifying equipment purchases in the year placed in service. Consider that computer upgrade or office furniture you've been postponing.
Software and Subscriptions: Prepay annual subscriptions for business software, professional memberships, or insurance premiums due in early next year.
Professional Services: Schedule and pay for accounting, legal, or consulting services before year-end.
Retirement Contributions
SEP-IRA: Contribute up to 25% of compensation or $66,000 (2023 limit), whichever is less. You have until your tax filing deadline (including extensions) to make contributions.
Solo 401(k): If you're self-employed with no employees, this allows higher contribution limits combining employee and employer contributions.
Health Savings Account (HSA)
If you have a high-deductible health plan, maximize your HSA contribution. For 2023, limits are $3,850 for individuals and $7,750 for families, with an additional $1,000 catch-up contribution if you're 55 or older.
Income Timing Strategies
Defer Income: If you expect to be in a lower tax bracket next year, consider delaying invoices or year-end bonuses until January.
Accelerate Deductions: Pay outstanding business expenses, make charitable contributions, or prepay deductible expenses.
Consider Entity Structure
S-Corp Election: If you're a sole proprietor or single-member LLC with significant income, electing S-Corp status can reduce self-employment taxes.
Asset Strategies
Bonus Depreciation: Qualifying assets can be 100% depreciated in the year placed in service (phasing down in coming years).
Tax-Loss Harvesting: For investment accounts, realize losses to offset gains.
Charity
Charitable Donations: Make year-end charitable contributions to reduce taxable income. Cash donations are deductible up to 60% of your adjusted gross income, while donations of appreciated assets can provide additional tax benefits by avoiding capital gains taxes. Don't forget to include smaller donations throughout the year and consider donating appreciated business assets or inventory.
Disclaimer: Tax strategies should align with your overall financial goals and business plans. Tax laws are complex and subject to change. Always consult with your accountant before implementing year-end tax strategies.
Want to maximize your tax savings this year? Schedule a year-end tax planning session to identify opportunities specific to your business.
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