Take Advantage of Deductions:

1. Home office expense for the self-employed:

• Designate a Dedicated Space: Set aside a specific room or area in your home as your home office.
• Eligible Deductions: You can deduct a portion of your household expenses, such as mortgage interest, utilities, and insurance, from your business income.
• Profit Requirement: Home office deductions can only be claimed if your business is profitable. You cannot use these deductions to create or increase a business loss.
• IRS Guidelines: For detailed information, refer to IRS Form 8829 and the IRS guide on home office deductions.
• Exclusions: Home office deductions are not available to owners of S Corporations or C Corporations.
• Deduction Methods: You can choose between two methods:

  • Simplified Method: Deduct $5 per square foot of space used exclusively for business, up to 300 square feet (maximum deduction of $1,500).

  • Standard Method: Deduct a percentage of your actual household expenses based on the ratio of your home office’s square footage to the total square footage of your home.

2. Business Expenses: 

Ensure all ordinary and necessary business expenses such as cost of sale, rent, supplies and materials, subcontractors, payroll, software, marketing, rent, travel, office expense are recorded in the business books.

3. Mileage Expense:

If you are using your personal vehicle for business, you are allowed to deduct mileage – Refer to mileage deduction page for more information. ( insert internal link here I will provide vehicle mileage blog later).

4. De Minimis Safe Harbor Election:

• Deduct Tangible Property Costs: You can elect to deduct 100% of tangible property costs if each item or invoice is less than $2,500. For more information, see the IRS regulations on tangible property.
• Capitalization of Higher Costs: If a tangible property item exceeds $2,500, it must be capitalized on the balance sheet, and a portion of the cost is deducted annually as depreciation until the full amount is depreciated.

5. Consider your Business Structure:

• S Corporation Election: If your business is an LLC or a C Corporation, consider electing S Corporation status to save on self-employment taxes by paying yourself a reasonable salary and taking the rest as distributions.
• Pass-Through Entity Deduction: If your business is a pass-through entity (S Corp, LLC, Partnership), you may be eligible for the 20% Qualified Business Income (QBI) deduction.

6. Maximize Retirement Contributions:

• 401(k) Plans: Contribute to a 401(k) plan or other retirement plans like a SEP IRA or SIMPLE IRA. Contributions are often tax-deductible.
• Defined Benefit Plans: For higher income, a defined benefit plan can allow significant contributions, which are tax-deferred.

7.  Defer Income:

• Year-End Planning: If possible, defer receiving income until the following year if you expect to be in a lower tax bracket.

8. Take Advantage of Tax Credits:

• Research and Development (R&D) Credit: If your business invests in innovation, you may qualify for the R&D tax credit.
• Work Opportunity Credit: This credit is available if you hire employees from certain targeted groups, like veterans or ex-felons.
• Energy-Efficient Tax Credits: Invest in energy-efficient equipment or vehicles to qualify for these credits.

9. Health Insurance and Benefits:

• Health Savings Account (HSA): Contributions to an HSA are tax-deductible and can be a good option if you have a high-deductible health plan.
• Self-Employed Health Insurance Deduction: If you’re self-employed, you can deduct health insurance premiums for yourself and your family.

10. Utilize Section 179 Expensing:

• Immediate Deduction: Instead of depreciating assets over time, you can take an immediate deduction for the full cost of qualifying equipment and software purchased during the year.

11. Income Splitting:

• Hire Family Members: If you employ family members, you can shift income to them, potentially lowering your overall tax bracket.

12. A Flexible Spending Account (FSA) is 

a valuable tool for business owners and employees alike to save on taxes while covering certain healthcare or dependent care expenses.

Pre-Tax Contributions:

• Tax Savings: Contributions to an FSA are made with pre-tax dollars, which reduces your taxable income. This means you save money on federal income taxes, Social Security taxes, and Medicare taxes.
• Contribution Limits: For 2024, the maximum contribution limit for a healthcare FSA is $3,150. Employers may also contribute to your FSA, but combined contributions cannot exceed the IRS limit.

Eligible Expenses:

• Healthcare FSA: Funds can be used for a wide range of out-of-pocket medical, dental, and vision expenses, such as copayments, deductibles, prescription medications, and some over-the-counter items.
• Dependent Care FSA: This account helps cover costs related to the care of dependents while you work, including daycare, after-school programs, and elder care.

Use-It-or-Lose-It Rule:

• Year-End Planning: FSA funds generally must be used within the plan year, or they will be forfeited. However, some plans offer a grace period of up to 2.5 months or allow a rollover of up to $610 to the next plan year.
• Plan Accordingly: To maximize your FSA benefits, carefully estimate your eligible expenses for the year to avoid losing any unused funds.

Employer Benefits:

• Cost Savings: Employers also benefit from offering FSAs as they reduce payroll taxes on employee contributions. This can result in significant savings, particularly in businesses with larger payrolls.
• Employee Attraction and Retention: Offering an FSA can be an attractive benefit for employees, enhancing overall compensation packages and helping to attract and retain top talent.