The end of the year is approaching, and several tax planning opportunities expire on December 31. Whether you want to reduce your 2023 tax liability or position your business for 2024, here are the moves that matter most.
Accelerate Expenses, Defer Income
The oldest tax planning strategy remains effective. If you expect to be in the same or lower tax bracket in 2024, consider paying deductible business expenses before year-end (rent, supplies, insurance premiums) and deferring income collection into January. For cash-basis taxpayers, the timing of payments and receipts directly affects which year the income or expense falls into.
Maximize Retirement Contributions
Solo 401(k) employee deferrals must be made by December 31 (employer contributions can be made up to your filing deadline). If you have not maxed out your contributions, you still have time. The 2023 employee deferral limit is $22,500 ($30,000 if you are 50 or older).
Use Bonus Depreciation While You Can
Bonus depreciation dropped to 80% for assets placed in service in 2023, down from 100% in 2022. It will continue to phase down: 60% in 2024, 40% in 2025, 20% in 2026, and zero in 2027 (under current law). If you have been considering equipment purchases, the depreciation benefit is higher now than it will be next year. Assets must be placed in service, not just purchased, before December 31 to qualify for the 2023 rate.
Consider Entity Elections
If you plan to elect S-Corp status for 2024, the filing deadline for Form 2553 is March 15, 2024. But year-end is the right time to evaluate whether the election makes sense. Compare your projected self-employment tax savings against the cost of running payroll and the additional compliance requirements. For many business owners with net income above $60,000, the S-Corp election produces meaningful tax savings.
Review Your Estimated Tax Position
If your Q4 estimated payment (due January 15, 2024) will leave you short of the safe harbor, consider making an additional payment before December 31. The underpayment rate is 8%, and the penalty is calculated quarterly. Paying a few extra thousand in December is cheaper than the penalty on a shortfall.
Year-end planning is not about finding tricks. It is about making deliberate decisions with the time you have left. Review your numbers now, and talk to your tax advisor before the holidays.