Closing the Year Strong: Key Tax Strategies for Entrepreneurs Before 2025

As the end of 2024 approaches, high-net-worth business owners and entrepreneurs have a unique opportunity to maximize their tax savings and set the stage for a prosperous 2025. With proactive planning, you can minimize your tax liability, optimize deductions and ensure your financial strategies align with your long-term goals. Here’s a guide to key year-end tax strategies to consider.

Maximize Deductions with Strategic Spending

The end of the year is the perfect time to review your business expenses and identify areas where additional spending could yield valuable tax deductions. Consider these tactics:

• Prepay Expenses—If cash flow allows, prepaying next year’s expenses (like rent, subscriptions or insurance) can increase deductions for 2024.
• Invest in Equipment—Take advantage of the Section 179 deduction or bonus depreciation by purchasing equipment or vehicles for your business.
• Fund Retirement Plans—Contributions to qualified retirement plans, like a SEP IRA or solo 401(k), not only secure your future but also reduce your taxable income.

Review Your Business Structure

Changes in income or tax laws might mean it’s time to reassess your entity structure. For example:

• S Corporation vs. LLC—An S Corp might allow you to save on self-employment taxes through reasonable salary adjustments.
• C Corporation Opportunities—Consider timing dividends or bonuses strategically to optimize corporate and individual tax rates.

Optimize Tax Credits

Tax credits directly reduce your tax liability, so ensure you’re not leaving money on the table:

• Research & Development (R&D) Tax Credit—If your business invests in innovation, you could qualify for significant credits.
• Energy Efficiency Incentives—Investments in renewable energy or energy-efficient upgrades for your business may qualify for federal or state credits.

Harvest Tax Losses

For those with investment portfolios, now is the time to evaluate your unrealized gains and losses:

• Offset Gains—Selling underperforming investments can offset capital gains, reducing your taxable income.
• Rebalance Your Portfolio—Align your investments with your financial goals while staying mindful of wash-sale rules.

Plan Charitable Contributions

The holiday season is ideal for giving back while also enjoying tax benefits:

• Donor-Advised Funds—These funds allow you to take a deduction now while planning donations over future years.
• Appreciated Securities—Donating stocks or other appreciated assets can help you avoid capital gains taxes while supporting causes you care about.

Conduct a Tax Projection

A tax projection is a critical tool to avoid surprises and maximize opportunities. Work with your financial team to:

• Adjust Estimated Payments—Ensure you’ve paid enough to avoid penalties but not so much that you miss out on cash flow.
• Defer or Accelerate Income—Based on your expected tax bracket, defer income to 2025 or accelerate it into 2024 to minimize taxes over time.

Stay Ahead of Tax Law Changes

The tax landscape is constantly evolving. Keep an eye on pending legislation that could impact:

• Estate tax exemptions
• Corporate tax rates
• Investment incentives

Consult with your tax advisor to understand how changes could affect your strategy and make adjustments accordingly.

What’s Your Plan for 2025?

Year-end tax planning is not just about saving money now—it’s about positioning yourself for long-term success. By implementing these strategies, you can maximize deductions, optimize your tax position and enter 2025 with a clear financial roadmap.

If you’re looking for tailored advice, the Illumination Wealth team specializes in helping entrepreneurs and high-net-worth individuals navigate the complexities of tax planning. Ensure you close 2024 on the strongest financial footing possible. Contact us today.