Princeton, NJ [December 12, 2024] – As the end of the year approaches, the tax experts at Withum note it is crucial for both businesses and individuals to consider various tax strategies to optimize their financial positions. By taking proactive steps now, there is greater potential for reducing tax liabilities and setting the course for a more-favorable financial future.
According to Lynn M. Mucenski-Keck, CPA, MST, who is the firm’s lead for federal tax policy, the following are some key strategies to consider:
Businesses
- Accelerate expenses – Cash-basis taxpayers can pay expenses that are due next year and prepay expenses for items that are going to be consumed within the next 12 months.
- Defer income — Cash-basis taxpayers can delay invoices and collection efforts until after the new year; accrual basis taxpayers can delay certain advance payments for services and defer the revenue to the following tax year.
- Apply for tax credits — There are a range of tax credits available to businesses, such as the R&D tax credit (for the design, development or improvement of products, processes, techniques, software and so forth); the work opportunity tax credit or WOTC (for employing certain classes of persons, such as veterans); and the 2021 employee retention credit.
- Businesses can take 60% bonus depreciation in 2024 for certain property placed in service by year-end, and small/medium-sized businesses can take advantage of Section 179, expensing up to certain investment limits.
- Businesses can set up employee benefits programs to incentive and retain their workers, such as PTO buyback programs, educational assistance programs and disaster relief programs.
- Businesses can buy green energy tax credits to lower their tax bills. These credits reduce taxes dollar-for-dollar and can be purchased for prices in the mid-$0.80s to mid-$0.90s on the dollar. The most common transactions in tax credits include production tax credits and investment tax credits.
Individuals
- Contemplate making annual exclusion gifts and remaining estate-tax exemption – Making an annual $18,000 (per donor/per done) annual exclusion gift is an easy way to reduce estate-tax liability. The current lifetime estate tax exclusion is set to expire at the end of 2025. Consider utilizing the remaining exemption now before it is significantly reduced – it is currently $13,610,000 for a single taxpayer.
- Consider modeling the potential impact of legislative changes and TCJA sunset – In the event of major changes, it’s imperative to understand the potential impact on various scenarios to act swiftly to optimize one’s tax and financial picture.
- Harvest tax losses – This provides a great opportunity to rebalance a portfolio while generating some tax benefit if it fits the long-term investment strategy. Of course, it’s a great way to save on taxes.
- Fund retirement plans – Defined contribution limits for 2024 [think employer-sponsored 401(k)] are $23,000 with a catch up of $7,500 for those over 50. If individual contributions are maximized, not considering any employer match, this will continue saving more money saved for retirement. Additionally, 401(k) contributions lower the amount one will pay in taxes for the year of contribution. 401(k) contributions grow tax-deferred, so no taxes will be paid until a withdrawal at retirement.
- ROTH IRA conversions – Required minimum distributions are not required so this can leave the next generation a tax-free inheritance. Additionally, there is an opportunity to avoid higher taxes in retirement. If Traditional IRA positions are down, conversion may make sense to convert and pay tax at a lower amount. Plus, the future appreciation will be tax-free.
Withum, a nationally recognized CPA and advisory firm with 23 offices and annual revenue of $578M, is a top-ranking public accounting firm providing advisory, tax and audit services to businesses and individuals on a local-to-global scale. Established in 1974 and headquartered in Princeton, N.J., Withum has a presence in major financial centers across the country. Withum is an independent member of HLB, the global advisory and accounting network.
# # #