As 2023 is winding down, there is no better time to start tax planning for the year ahead. For an entrepreneur, this means laying the groundwork for an effective tax strategy and minimizing tax liabilities when possible.
In this article, we’ll share a few tax planning tips to guide you through the process and explore what tax strategies you can implement to save money in 2024.
Lay the Groundwork for Good Tax Planning
The foundation of good tax planning lies in the prep work. Make use of these tips to make the most of your tax planning:
- Stay Organized – Keep all financial records in order. Having your income and expenses accurately documented will make your life easier when it comes time to identify deductions and credits you qualify for as well.
- Understand Credits and Deductions – Business expenses, research and development credits, and more can all be taken advantage of to impact your bottom line. Understanding what is available to your business can save you considerable money at tax time.
- Implement an Accounting Structure that Promotes Tax Efficiency – We highly recommend working closely with an accountant who can help you find the right accounting structure for your business. A system that maximizes deductions while ensuring compliance is ideal for any business.
- Stay in the Loop with Changes in Tax Laws – Tax laws are constantly changing. Staying aware of these changes helps you remain compliant and also allows you to take advantage when laws change in your favor.
- Prepare for Quarterly Estimated Tax Payments – Not only can this help you avoid unnecessary penalties, but it also enables you to maintain a healthy cash flow throughout the year.
Look into Specific Tax Planning Strategies
Maximize Retirement Contributions
You will see this in every tax planning guide because it is one of the easiest and most impactful tips you can implement. Contributing to retirement accounts is not just a savvy financial move; it is also a powerful tax planning strategy.
Contributing to a Simplified Employee Pension (SEP) IRA or a Solo 401(k) are great options. These plans are a great way to secure your financial future and offer valuable tax deductions at the same time by lowering your taxable income. Again, talk with an accountant or financial advisor to determine the best route.
Take Advantage of Section 179
Section 179 of the tax code is a game-changer for businesses. Section 179 allows you to deduct the full purchase price of qualifying equipment and software in the year it is placed into service. This provides you with an upfront deduction and a means to improve your cash flow immediately. Small and medium-sized businesses can leverage this provision to invest in crucial assets while also enjoying tax benefits.
Consider Qualified Business Income Deduction (QBI)
Another great deduction is the Qualified Basic Income Deduction or QBI. This allows your business to deduct up to 20% of your qualified business income. As an entrepreneur in charge of your own business, it is important to be aware of the criteria and limitations of this deduction in order to capitalize on potential substantial tax savings.
Explore Tax-Advantaged Investments
Not all investments are the same in the eyes of an entrepreneur. In order to get the most out of your investment portfolio, consider those that offer tax advantages.
For example, take a look at Opportunity Zone investments or other tax-efficient investment vehicles. This can be another great way to reduce your overall tax liability. Consult with a financial advisor to explore investment options that make the most sense for you and your business goals.
Optimize Business Structure
Choosing the right business structure based on your business goals and tax implications is a critical step for an entrepreneur. Whether it is a sole proprietorship, LLC, S corporation, or C corporation, each structure has different tax implications that you should be aware of.
As always, we recommend consulting with a tax professional to determine the most tax-efficient structure for your business. This decision will have a lasting impact on your tax obligations and your financial success far into the future, so it is important to see that it is done right and with the help of someone who knows what they are doing.
Consult with an Expert in Tax Planning for Entrepreneurs
Proper tax planning can make a huge difference for your business and your own entrepreneurial success. By keeping your finances organized, having an understanding of credits and deductions you qualify for, implementing efficient accounting structures, and exploring specific tax strategies tailored to the needs of your business, you can optimize your tax position and financial health.
In order to make the most of your tax planning, it is always a good idea to consult with a professional. With that in mind, Pasquesi Partners would love to work with you. Our team of experts is dedicated to providing personalized guidance, ensuring that you make informed decisions that align with your business goals. You do not have to navigate the intricate world of tax planning alone – contact us today to discuss what we can do for you.