Reduce Your Tax Liability Post-2024: Smart Strategies for Business Owners

As we move into 2025, many business owners are looking back at 2024 and wondering how they can still minimize their tax burden. Smart tax planning is a year-round process, but there are still some powerful strategies you can employ even after the year has ended. This blog post outlines two key approaches: SEP IRA contributions and depreciation deductions.

SEP IRA Contributions: A Retirement and Tax-Saving Powerhouse

A Simplified Employee Pension (SEP) IRA is an excellent tool for self-employed individuals and small business owners. It allows for employer-funded retirement contributions, providing a double benefit: building your retirement nest egg while simultaneously reducing your current tax liability. The best part? You can contribute to a SEP IRA up until the tax filing deadline, including extensions. For 2024, the contribution limit is the lesser of 25% of an employee’s compensation or $69,000. This flexibility makes it a valuable tool for managing your taxable income retroactively.

Depreciation Deduction: Maximizing Asset Investments

A Depreciation deduction is a tax provision that allows businesses to recover the cost of qualifying assets over time. This is done by deducting a portion of the asset’s value each year. Two key strategies within depreciation are particularly advantageous: Section 179 and bonus depreciation.

Imagine a construction company purchases $1,000,000 worth of new equipment in 2024. By utilizing Section 179, they can immediately deduct the entire $1,000,000 from their taxable income, dramatically reducing their tax burden for the year. However, if they purchased $3,200,000 in assets, exceeding the $3,050,000 cap, the Section 179 deduction would begin to phase out. Alternatively, they could opt for bonus depreciation and deduct 80% of the asset’s cost.

By strategically implementing these strategies, you can effectively reduce your tax liability and optimize your financial planning. If you have any questions or need personalized guidance, please don’t hesitate to reach out to us. We’re here to help you navigate the complexities of tax planning.