Over the next few weeks, we will be sharing tax planning opportunities for businesses and individuals.  Examining your 2024 tax situation before year-end could lead to tax savings when you file your business tax return.

Planning With Timing of Income & Expenses

Many of our clients are Pass Through Entities (PTE) where the owners report their share of the business income on their individual return.  Since individuals are subject to “bracketed” tax rates – the more income, the higher the tax rate – one traditional year-end tax planning strategy for business owners includes reducing current year taxable income by deferring income into later tax years and accelerating deductions into the current tax year. In the following discussions we include “timing” suggestions as they relate to traditional year-end tax planning strategies that would cause you to accelerate deductions into 2024, while deferring income into 2025. However, for businesses that expect their taxable income to be significantly lower in 2024 than in 2025, the opposite strategy might be more advisable. In other words, for struggling businesses, a better year-end planning strategy could include accelerating revenues into 2024 (to be taxed at lower rates), while deferring deductions to 2025 (to be taken against income that is expected to be taxed at higher rates).

Consider Simplified Accounting Methods for Certain Small Businesses

The Tax Cuts and Jobs Act (enacted in late 2017) provides the following accounting method relief provisions for businesses with Average Gross Receipts (AGRs) for the Preceding Three Tax Years of $30 Million or Less (for 2024):

  • Generally allows businesses to use the cash method of accounting even if the business has inventories;
  • Allows simplified methods for accounting for inventories;
  • Exempts businesses from applying UNICAP, and;
  • Liberalizes the availability of the completed-contract

The IRS has released detailed regulations and procedures to follow for taxpayers who qualify and wish to change their accounting methods in light of these relief provisions.

Qualified Business Income (Section 199A)

Your ability to take maximum advantage of the 20% 199A deduction for 2024 and/or 2025 may, in certain situations such as the type of your business or the amount of W-2 wages you pay, be enhanced significantly if you are able to keep your taxable income below certain thresholds.

S Corporation Shareholders Should Check Stock and Debt Basis Before Year-End

If you own S corporation stock and you think your S corporation will have a tax loss this year, you should contact us as soon as possible. These losses will not be deductible on your personal return unless and until you have adequate “basis” in your S corporation. If an S corporation anticipates financing losses through borrowing from an outside lender, the best way to ensure the shareholder gets debt basis is to: 1) Have the shareholder personally borrow the funds from the outside lender; and 2) Then have the shareholder formally (with proper and timely documentation) loan the borrowed funds to the S corporation. A shareholder cannot get debt basis by merely guaranteeing a third-party loan to the S corporation.

Partnerships & S Corporations (PTE’s) Should Consider the Election to Allow Business to Pay Virginia (and possibly other state) Income Taxes

Be sure to pay the estimated state tax by December 31 in order to claim a 2024 deduction. If we previously instructed you to pay “safe harbor estimates” based on prior year PTET, the final Virginia payment is due by December 15th.