Top Year-End Tax-Saving Strategies for 2024-25: Maximize Your Refund

As the year-end approaches, I know how stressful it can be to juggle tax planning with everything else on your plate. It’s easy to feel overwhelmed and risk overpaying on your taxes, especially with ever-changing rules and deadlines. That’s why I’m here to help you cut through the clutter. 

In this blog, I’ll walk you through proven strategies to slash your tax bill and maximise your refund before the year wraps up. We’ll dive into crucial areas like savvy deductions, smart moves for your stock portfolio, and leveraging safe harbour tax laws.

I’ll also cover last-minute medical plan strategies, retirement deductions, the ins and outs of Roth IRAs and a lot more. With these insights, you’ll not only navigate the tax season with confidence but also come out ahead. So, let’s get started and make sure you’re not leaving money on the table. 

Last-Minute Year-End General Business Income Tax Deductions for 2024

The IRS may not hand you a check for the money they owe, but with the right strategies, you can reduce your tax liability. These six powerful business tax deduction strategies for 2024 will ensure you pay less in taxes, saving more for your business. Implement them before the end of the year to make the most of your deductions.

1. Prepay Expenses Using the IRS Safe Harbor

One of the most underused yet effective year-end tax-saving strategies is prepaying expenses. The IRS offer a key tax planning strategy for cash-basis taxpayers, known as the “Safe Harbor Rule.” This allows businesses to prepay qualifying expenses and deduct them up to 12 months in advance without triggering any IRS adjustments or challenges. The strategy becomes highly effective when used for year-end deductions, giving businesses a legitimate way to lower their tax liability before the year closes.

But You might be wondering how it works?

So, under this safe harbour, businesses can prepay expenses like rent, insurance, and leasing payments for business vehicles or equipment. 

The key rule is that the prepayment cannot cover more than 12 months of expenses, and the prepayment cannot extend beyond the following tax year. This ensures that the IRS doesn’t flag it as an attempt to improperly defer income.

For example, a business can prepay rent for the entirety of 2025 before December 31, 2024, and deduct that expense in their 2024 taxes. However, if they attempt to prepay rent for 2026 or beyond, they would be crossing the 12-month safe harbor limit, and the IRS could disallow the deduction.

Qualifying Expenses: Some of the qualifying expenses for prepayment under the IRS guidelines include:

• Rent on offices, warehouses, or machinery
• Business insurance premiums (such as liability or malpractice insurance)
• Lease payments for business vehicles or equipment

By leveraging these prepayments, businesses can reduce taxable income in the current year while managing cash flow effectively.

How to Leverage the Safe Harbor Rule?

Let’s say you own a small business and are on a cash basis for tax purposes. You rent office space and currently pay $5,000 per month in rent. Knowing that your business will have higher income in 2024 and you want to lower your tax burden, you decide to prepay your office rent for 2025 before the year ends.

• On December 27, 2024, you write and mail a check to your landlord for $60,000, covering all rent payments for 2025.
• Your landlord receives the check in January 2025 and records the income for the 2025 tax year.

and the result ….

• You get to deduct the full $60,000 in 2024, lowering your taxable income for that year.
• Your landlord doesn’t have to recognize the $60,000 as income until 2025, which aligns with their financial planning.

This strategy works perfectly for you because you reduce your taxable income by $60,000, potentially moving you into a lower tax bracket for 2024.

Limitations of IRS Safe Harbor Prepayment

While the Safe Harbor Rule is an excellent tool for reducing taxable income, there are some limitations businesses should be aware of:

1. 12-Month Limit: You can only prepay for up to 12 months. Prepaying for anything beyond this limit will disqualify the deduction and raise red flags with the IRS.
2. Qualifying Expenses Only: The rule applies only to specific types of expenses, such as rent, insurance premiums, and equipment leases. Not all expenses qualify for prepayment deductions.
3. Cash-Basis Taxpayers: This strategy works best for businesses that file taxes on a cash basis. Accrual-based businesses follow different rules regarding the timing of expenses and income recognition.
4. Timing: The prepayment must be made before the end of the tax year. Payments made on January 1 or later will be counted for the next tax year and will not provide the deduction you’re aiming for in the current year.

Let’s understand this more with an example:

Imagine you’re a business owner who wants to prepay rent for both 2025 and 2026 to maximize your deductions for 2024. You decide to write a check for $120,000 to cover two years of rent payments. While you may think this will reduce your 2024 taxable income significantly, you’re only allowed to deduct $60,000—the amount that covers 12 months of rent. The extra $60,000 won’t qualify for a deduction in 2024 and could raise IRS scrutiny..

For more on this, refer to the IRS Prepayment Guidelines.

2. Stop Billing Customers, Clients, and Patients Until 2025

When it comes to reducing your taxable income, understanding IRS Cash Basis accounting is crucial for business owners, freelancers, and entrepreneurs. Under the cash basis method, you report income in the year you receive it and deduct expenses in the year you pay them.

Like, if your business operates on a cash basis, consider delaying billing until after December 31, 2024. This strategy is simple but highly effective in postponing income and reducing your current year’s taxable income. 

When you delay sending invoices, customers won’t pay until they’re billed, meaning the income won’t be recognized until the following year.

How Does IRS Cash Basis Work?

1. Income Reporting: You record income only when cash or payments are actually received.
2. Expense Deductions: You deduct expenses when they are paid, not when incurred.

This gives you flexibility because you can delay income by postponing billing or accelerate deductions by prepaying expenses, as discussed in the strategies earlier. Businesses on a cash basis find that they can better manage their taxable income by controlling when they recognize income and expenses.

For Example –

Let’s say you’re a freelance graphic designer operating under the cash-based method, and it’s December 2024. You’re looking to reduce your taxable income for the year. 

Here’s how you could use the cash basis to your advantage:

• Delay Income: You usually bill your clients at the end of every month. To avoid having to report additional income in 2024, you could delay billing clients until January 2025. This postpones the recognition of income, effectively pushing it into the next tax year.
• Accelerate Expenses: You have $10,000 worth of office rent for 2025. By prepaying in December 2024, you can deduct the expense this year, reducing your taxable income for 2024.

If your gross income is $90,000, the $10,000 rent prepayment could reduce your taxable income to $80,000, saving you thousands in taxes.

But… pay attention !!!!!!

While cash basis accounting offers significant tax-saving opportunities, it does have some limitations:

1. Inaccurate Financial Picture: The cash basis method doesn’t always give an accurate picture of your business’s financial health since it only accounts for cash transactions. For instance, if you’ve earned income but haven’t received payment, it won’t show up as income until cash is in hand, potentially underreporting your earnings.
2. Not Suitable for Large Businesses: The IRS restricts cash-based accounting for businesses with gross receipts over $27 million (as of 2024). Businesses that exceed this limit must use the accrual method.
3. Limited to Certain Types of Expenses: Some expenses, like capital expenditures (e.g., buying machinery or property), can’t be deducted immediately under the cash basis method and require depreciation over time.

3. Invest in Office Equipment and Get Section 179 Expensing

When it comes to tax savings, Section 179 and Bonus Depreciation are two powerhouse tools for business owners. If you’re thinking about investing in new or used equipment for your business, these provisions can give you a massive financial boost by allowing you to write off the full cost of qualifying purchases in the same year.

a. But what actually is Section 179?

Section 179 lets businesses deduct the full cost of certain qualifying property—like equipment, furniture, and even certain vehicles—up to a limit. For 2024, the deduction limit is set at $1.16 million, which means that if your business buys a piece of equipment, you can write off the entire cost (up to that limit) instead of spreading the deduction out over several years. 

The key is that the equipment must be purchased and put into use before the end of the tax year to qualify.

b. Bonus Depreciation – The Extra Punch

Bonus depreciation goes hand-in-hand with Section 179. After you’ve hit the Section 179 limit, bonus depreciation allows you to deduct 80% of the remaining cost of your purchases. Unlike Section 179, there’s no spending cap. So, if you’re making large purchases—like buying multiple pieces of equipment—bonus depreciation ensures that you’re still getting major tax savings even after you max out Section 179 deductions.

Here’s the catch with bonus depreciation: it’s set to phase out after 2026 unless Congress extends it. 

For 2024, though, it still allows you to write off a huge chunk of your purchases, which makes it incredibly valuable if you’re investing heavily in your business this year.

c. How It Helps? Understand with an example

Let’s say you run a small manufacturing business and you buy $1 million worth of new equipment in 2024 to boost your operations. Thanks to Section 179, you can immediately deduct the full $1 million from your taxable income, giving you a huge tax break.

But what if you bought even more? Let’s say you invested $2 million. After you deduct $1.16 million using Section 179, you could use bonus depreciation to deduct 80% of the remaining $840,000. That’s an additional $672,000 deduction, bringing your total write-off for the year to $1.832 million. 

Imagine how much that would save you in taxes.

Now let’s talk about some Limitations and Where It Can Fall Short

Section 179 and bonus depreciation sound like a dream come true—and they are, for the right businesses. 

But there are limitations to be aware of:

1. Profitable Businesses Only: You can only deduct up to the amount of your taxable income with Section 179. So, if your business isn’t making money, this deduction doesn’t help you. In that case, bonus depreciation might be a better option because it allows you to create a tax loss, which can be carried forward to future years.
2. Property Use: Not all purchases qualify. Section 179 applies only to tangible property like machinery, equipment, and software. It doesn’t apply to land, buildings, or inventory. Bonus depreciation has a broader scope, but still has some limitations.
3. Cap on Section 179: While the $1.16 million limit sounds generous, businesses with big purchases or high-income thresholds may hit the cap and need to rely on bonus depreciation. But remember, bonus depreciation is phasing out, so plan your purchases accordingly.

Using these strategies wisely can save your business significant money on taxes, but it’s important to assess what fits your specific situation. If you’re looking to grow or invest in your business, Section 179 and bonus depreciation are tools you don’t want to overlook.

For more information, check out the IRS’s detailed breakdown on Section 179 here.

4. Use Your Credit Cards for Last-Minute Purchases

Using your credit card for last-minute purchases is a smart way to maximize your business tax deductions before the year ends. The IRS gives sole proprietors and single-member LLCs, filing a Schedule C, a handy benefit here: You can claim a deduction the very moment you charge something to your business or personal credit card.

This means if you’re looking to stock up on office supplies, buy that new business laptop, or even cover travel expenses, you don’t have to wait until you actually pay the bill. As long as the charge hits your account by December 31, 2024, it counts as a deduction for this tax year, even if you don’t pay off the balance until 2025.

Why This Works Well for Sole Proprietors or LLCs

For someone filing a Schedule C, this immediate deduction can provide a quick and simple way to reduce taxable income. Instead of worrying about having enough cash on hand, you can simply charge it and still get the benefit. Plus, this can be a great way to take advantage of any rewards points or cashback programs your credit card offers, giving you an extra boost while also cutting down your tax bill.

Let’s say you’re running a freelance design business as a sole proprietor. You’ve been eyeing a new graphic design software package for $1,200 that’ll help you take on more clients. 

You charge it to your credit card on December 30, 2024. Even though you won’t pay your credit card bill until January 2025, the IRS lets you deduct that $1,200 as an expense for the 2024 tax year. You get to reduce your taxable income right away, helping you keep more money in your pocket.

For example

Let’s imagine SAM, a single-member LLC that runs an online retail business. Her business made a profit of $85,000 this year, but she’s looking for ways to lower her tax burden. On December 28, she decides to buy $5,000 worth of new packaging equipment on her business credit card. 

Even though she won’t pay off the card until next year, she can still deduct the $5,000 from her 2024 taxes. This drops her taxable income to $80,000, and she ends up saving hundreds of dollars in taxes by just using her card strategically.

Now here are some limitations of this amazing tax strategy you should keep in mind

However, there are some things to watch out for. If you’re running your business as a corporation and using your personal credit card, the situation changes. The corporation won’t get the deduction right away—it only counts when the corporation reimburses you for that expense. 

So, if you want to claim the deduction for 2024, you need to make sure your corporation reimburses you before the year ends.

Another thing to consider is the potential interest on those credit card purchases. If you carry a balance and end up paying high interest rates, those tax savings could get cancelled out by the extra fees you’re racking up. So, while using credit cards for year-end purchases can be a great tax strategy, make sure you’re not taking on unnecessary debt that outweighs the benefits.

By using your credit cards smartly, you can get ahead of your taxes without even having to part with cash immediately. Just remember to play it right and be aware of the rules that apply to how your business is set up.

5. Don’t Be Afraid of Excess Deductions

If your business deductions exceed your income for the year, don’t worry.Don’t hold back on claiming deductions just because you’re in a loss year. Every deduction counts. Claim every business expense you’re entitled to, even if it means creating a loss. That loss turns into your NOL, and that NOL will be a tax-saving powerhouse in the future. It can be carried forward to offset up to 80% of your future taxable income

Sure, it feels odd to be sitting on a loss, but in the grand scheme, it’s a strategy to slash your future tax bill. So, don’t leave any deductions on the table, especially if you’re in the early stages of your business, or experiencing a temporary dip in profits.

Now, you might think what are NOL Rules

So, When your business expenses outstrip your income, you’re in what’s called a Net Operating Loss (NOL) situation. Sounds like a bad thing, right? But for tax purposes, it’s actually a good deal. 

Here’s why.

Before the Tax Cuts and Jobs Act (TCJA) of 2017, you could carry back an NOL for two years. That meant if you had a loss in 2024, you could apply it to your tax returns from 2022 or 2023, snagging yourself a nice refund from the IRS. That provision is now gone, but don’t worry—there’s still a huge advantage here. The TCJA lets you carry your NOL forward indefinitely. 

In the short term, this won’t give you an immediate refund, but down the line, it can save you tons on future taxes. One thing to note, though: you can only use the NOL to offset up to 80% of your taxable income in any future year.

So How Does This Help You?

Let’s say your business had a rough year in 2024, and you’re looking at a $30,000 loss. While it stings in the moment, don’t forget about your trusty NOL. You can carry that $30,000 forward, and when your business starts booming in 2025 and you rake in $100,000, you can apply that NOL and only pay taxes on $70,000. Boom!!!!!!! That’s a huge win.

Now, there are some limitations. You can’t wipe out 100% of your taxable income using NOLs. As mentioned, it can only reduce up to 80% of your taxable income in a given year. So, if you have an NOL of $100,000 and make $50,000 in the next year, you’ll only be able to use $40,000 of that loss to offset your income, leaving you with $10,000 to still pay taxes on.

Also, you’ve got to stay diligent with your record-keeping. Make sure you’re documenting every expense so you can calculate that NOL properly and carry it forward.

6. Take Advantage of Qualified Improvement Property (QIP) Deductions

If you’ve made improvements to the interior of your business property, such as renovating your office or upgrading the space for employees, you may qualify for Qualified Improvement Property (QIP) deductions.

Qualified Improvement Property (QIP) is any improvement made to the interior of a building you own, provided the building is non-residential real property. This includes renovations, upgrades, or even installing new fixtures, as long as the improvements were placed in service after the building was originally put into use.

Why QIP Deductions are a Game Changer

Here’s why QIP deductions are a big deal:

1. Accelerated Depreciation: Unlike standard property depreciation which takes 39 years, QIP is depreciated over just 15 years. This faster depreciation means you get to write off your improvements much sooner.
2. Immediate Deductions: With Section 179 expensing, you can deduct the entire cost of your QIP in the year it’s placed in service. For 2024, you can also take advantage of 80% bonus depreciation. This means if you make improvements to your property this year, you could potentially deduct 80% of those costs right away.

Example: Suppose you spend $100,000 on upgrading your office space in 2024. Under the QIP rules, you could deduct $80,000 of that amount immediately using bonus depreciation, and the remaining $20,000 could be deducted over 15 years. This can lead to a substantial tax break in the year you make the improvements.

Source: Tax Foundation

How QIP Helps Save Big on Taxes

By taking advantage of QIP deductions, you’re not only improving your property but also giving your tax bill a serious reduction. Here’s how:

1. Huge Immediate Tax Savings: The ability to deduct the cost of improvements quickly can significantly lower your taxable income for the year. This is particularly valuable if you’re looking to offset income and reduce your tax liability.
2. Future Savings: Even though you’ll be writing off a large portion of your improvements now, the benefits can continue. The remaining amount depreciated over 15 years means ongoing deductions in future years, spreading out your tax savings.

Some other points to consider as well:

While QIP deductions offer great benefits, there are some limitations and considerations:

1. Timing Matters: To get the QIP deduction for 2024, the improvements must be placed in service by December 31, 2024. If you miss this deadline, you’ll have to wait until next year, which might not be ideal for your current tax planning.
2. Specifics of the Property: QIP only applies to improvements on non-residential real property. Residential properties, or improvements made before the building was put into use, don’t qualify.
3. Bonus Depreciation Limitations: The bonus depreciation rate of 80% for 2024 is set to decrease in the coming years. It’s crucial to act now if you want to maximize your deductions before the bonus rate drops.

Source: Tax Foundation

Therefore, if you’re eyeing that office renovation or planning significant upgrades, consider using QIP deductions to boost your tax savings. Remember, timing and details matter, so keep an eye on the deadlines and specific requirements to make the most of this opportunity.

For more on QIP and how it fits into your tax planning, check out the IRS QIP Guidelines.

Last-Minute Year-End Tax Strategies for Your Stock Portfolio in 2024-25

As we head toward the end of the year, it’s time to take a close look at your stock portfolio and uncover hidden opportunities to reduce your 2024 income taxes. The tax code is full of ways to offset gains and reduce what you owe—if you know how to play by the rules. The goal? Turn your portfolio into a tax-saving gold mine. Let’s explore some powerful strategies to help you cut down your tax bill and maximize your wealth as the year wraps up.

#Strategy 1. Offset Short-Term Gains with Long-Term Losses

When it comes to minimizing your tax bill, the strategy of offsetting short-term gains with long-term losses is one of the best tricks in the book. It’s simple yet powerful. Let’s break it down and look at how this strategy works, its benefits, a real-world example, and a few things you need to watch out for.

Why Offset Short-Term Gains?

First, let’s talk about short-term capital gains. These are the profits you make from selling assets you’ve held for less than a year. The IRS taxes these gains at your ordinary income tax rate, which can be as high as 40.8% (including the net investment income tax). That’s no small chunk of change, especially if you’re already in a high tax bracket.

On the flip side, long-term capital gains—profits from selling assets you’ve held for more than a year—are taxed at much lower rates, maxing out at 23.8%. This gap between short- and long-term tax rates is where the magic happens.

By selling investments at a long-term loss, you can use that loss to cancel out your short-term gains. In simple terms, you’re replacing a high-tax liability with a lower-tax cost, and that’s how you keep more of your money.

How Does It Work? Let’s Look at an Example

Say you had a great year and made a $10,000 profit by selling a stock you held for 10 months. That’s a short-term gain, which means it’s subject to the 40.8% tax rate. Without any strategies in place, you’re looking at paying $4,080 in taxes on that one trade alone.

But wait—now let’s say you also have another stock in your portfolio that you bought two years ago, and it’s currently down $10,000. By selling that stock and realizing the loss, you can offset your $10,000 short-term gain entirely. This way, you pay $0 in taxes on that profit. Instead of handing over nearly half your profit to the IRS, you get to keep it all.

That’s how you play the tax code’s offset game. You use your long-term losses to erase high-tax short-term gains.

Key Benefits of This Strategy

1. Immediate Tax Savings: By offsetting short-term gains, you can avoid paying those hefty tax rates that can go as high as 40.8%.
2. Improved Cash Flow: The less you owe in taxes, the more cash you keep in your pocket. This extra liquidity can be reinvested into new opportunities or just give you some breathing room for expenses.
3. Long-Term Wealth Building: By keeping more of your gains, you can reinvest them and grow your portfolio faster over time.

But What Are the Limitations?

Like most strategies, offsetting short-term gains with long-term losses isn’t without its limitations. One downside to this approach is that you need to have losses in your portfolio to make it work. If you’ve only got winners and no underperforming stocks, you can’t offset anything. This strategy also requires a level of portfolio management and timing—selling stocks for a loss isn’t always easy or what you want to do.

Here’s another potential pitfall: if your long-term losses exceed your short-term gains, those excess losses can only offset up to $3,000 of your ordinary income per year. Any leftover losses will have to be carried forward into future tax years. This means you won’t get all your tax savings right away if your losses are larger than your gains.

#Strategy 2. Claim the $3,000 Loss Deduction Against Ordinary Income

One of the best-kept secrets in tax planning is that you can use capital losses to offset ordinary income—and this can be a real lifesaver when it comes to cutting down your tax bill. The IRS allows you to deduct up to $3,000 in net capital losses each year against ordinary income, and if you’re married and filing separately, the limit is $1,500.

Now, this may not seem like a huge number, but it can have a big impact, especially if you’re in a higher tax bracket. Let’s break it down so you can see just how much of a difference this deduction can make in real-life terms.

The Power of $3,000 in Tax Savings

Let’s say you had a tough year in the market and ended up with $10,000 in long-term capital losses. While those losses can offset your gains dollar-for-dollar, any leftover losses can also be used to reduce your ordinary income. The IRS allows you to knock $3,000 off your ordinary income for the year.

Here’s why this matters: If you’re in the 40.8% tax bracket, deducting $3,000 from your ordinary income translates to a tax savings of $1,224. That’s like finding money in your couch cushions, but better, because it directly reduces what you owe.

Even if you’re in a lower tax bracket, the benefit is still significant. For example, if you’re in the 24% tax bracket, your tax savings from the same $3,000 deduction would be $720. This is especially handy when you’re looking for ways to trim down your tax bill without much effort.

Source: Schwab

Example: How It Works

Let’s look at a real-world example to see this in action. Say you’re an investor who made $2,000 in short-term gains this year but also took a loss on another investment, losing $5,000. After you’ve used $2,000 of your losses to offset your gains, you’re left with $3,000 in net losses.

Thanks to the IRS rules, you can apply those $3,000 in losses directly to your ordinary income. If you’re earning $100,000 this year and in the 40.8% tax bracket, the $3,000 deduction brings your taxable income down to $97,000, saving you $1,224 in taxes.

Carrying Over Losses

What happens if your losses exceed the $3,000 limit? Don’t worry—you don’t lose them. Any leftover losses can be carried forward to future years. For instance, if you had $7,000 in losses, you’d deduct $3,000 this year and carry over the remaining $4,000 to next year. This means you can keep chipping away at your tax bill year after year, which is a nice bonus for long-term tax planning.

Limitations and Considerations

Now, there’s one downside to this strategy: it’s capped at $3,000 per year. So, if you have a large amount of capital losses, like $20,000, the immediate impact on your ordinary income is limited. You’ll only be able to deduct $3,000 this year, with the rest carried over.

For investors with significant losses, this can feel like a slow payoff, especially if you’re eager to see a big reduction in your taxes right away. But the upside is that, over time, those losses can still be used to lower your tax bill in future years. So, while it may not all happen at once, it’s still a valuable tool for long-term tax reduction.

Why It’s Worth It

Even though the limit is $3,000, it’s still worth using every penny of it. Think of it as easy money—whether it’s knocking down your tax bill by hundreds or thousands, it’s still better than paying full price to Uncle Sam. And if you’re in a high tax bracket, this deduction becomes even more valuable.

It’s also a great way to reduce your taxable income in a high-income year. If you had an especially good year for bonuses, salary, or other taxable income, using capital losses to take the edge off can soften the tax blow and keep more of your earnings in your pocket.

#Strategy 3. Avoid the Wash-Sale Rule

The wash-sale rule can be a bit of a hidden trap for investors. It stops you from claiming a loss on a stock sale if you repurchase the same or a “substantially identical” stock within 30 days. So, if you’re hoping to lock in a tax-deductible loss in 2024, you’ll need to play it smart to avoid this rule.

Source: The motley fool

Let’s break it down: If you sell a stock and then quickly buy it back (either before or after the sale, within that 30-day window), the IRS says, “Nope, not so fast!” They won’t let you deduct the loss on your taxes. Instead, they make you add the loss to the cost basis of the new stock, meaning you’ll have to wait even longer to benefit from that loss.

But here’s the good news: You can easily sidestep this rule, and doing so can really boost your tax-saving potential.

The Benefits of Avoiding the Wash-Sale Rule

Why should you care about the wash-sale rule? Well, avoiding it means you can lock in your losses and immediately use them to reduce your taxable gains or even deduct from your ordinary income.

Here’s an example to make this clearer. Let’s say you’ve got a stock that has lost value—maybe you bought it for $10,000, and now it’s only worth $7,000. You decide to sell it to claim the $3,000 loss on your 2024 taxes. If you accidentally repurchase that same stock within 30 days, the IRS disallows the loss. You’re stuck with that loss until you sell the stock again, and now you’ve missed out on an immediate tax deduction.

By waiting out the 30-day period, though, you lock in the loss and can use it to offset other gains, or deduct $3,000 from your ordinary income. So, if you’re in the 40.8% tax bracket, this could save you up to $1,224 in taxes—just for sticking to the rule.

Let us understand this with an example –

Imagine you’re sitting on a portfolio where some of your stocks have tanked this year. The temptation might be to sell them off to lock in the losses and immediately jump back in at a lower price. But that’s where the wash-sale rule can trip you up.

Let’s say you sell a stock on December 15, and you buy the same stock again on December 25 because you believe it’s going to rebound soon. Since this repurchase happens within the 30-day window, the IRS will not allow you to claim the loss on your taxes. You’ll have to carry the loss over to the new stock’s cost basis, meaning no immediate tax break for 2024.

However, if you waited until, say, January 16 to buy the stock back, you could claim the loss for 2024 and still re-enter the market. Yes, you might miss out on some short-term gains during that 30-day period, but the tax savings could be worth it—especially if your loss was large enough to offset some big capital gains.

Limitations of Avoiding the Wash-Sale Rule

While avoiding the wash-sale rule can save you on taxes, there are some downsides and the biggest limitation is you have to sit out of the market for 30 days. That’s not always easy, especially if the stock you sold starts climbing back up during that period.

Here’s a scenario: Imagine you sold your stock for a $3,000 loss and planned to buy it back after 30 days to avoid the wash-sale rule. 

But what if the stock shoots up in value during those 30 days? You’re left in a tough spot. 

You missed out on a quick rebound and might end up paying more to get back in—potentially negating the tax benefit of avoiding the wash-sale rule.

Additionally, while you wait out the 30 days, your money is sitting idle, not working for you. If the market moves upward quickly, this could cost you more than the tax savings you’re hoping for. 

So, timing is everything. You’ll need to weigh the potential tax savings against the risk of missing out on gains during that waiting period.

#Strategy 4. Sell Additional Assets to Use Excess Capital Losses

When you have accumulated more capital losses than you can immediately use, selling additional assets to take advantage of those losses is a smart move. This strategy helps you clear out any losses that exceed the annual $3,000 deduction limit. And unlike with losses, the tax code doesn’t impose a wash-sale rule on gains, so you can re-buy your assets without any restrictions. Let’s dive deeper into how this works, why it’s beneficial, and when it might not be the best fit for you.

Why Selling Additional Assets is a Game-Changer

When you’re sitting on hefty losses, the idea is to pair them with gains from other investments. Think of it like cleaning a house, by selling assets that have been appreciated, you can match your losses to the gains. 

Here’s why this is a powerful tactic:

• No Wash-Sale Rule on Gains: While losses are subject to the 30-day wash-sale rule, there’s no such rule for gains. You can sell an appreciated stock today, claim the gain to offset your losses, and immediately buy back the stock if you want to keep it in your portfolio.
• Free Up Capital: This approach helps you rebalance your portfolio and get rid of underperforming stocks or assets that have hit their peak. You get the benefit of realizing the gains without the added tax hit, as your losses will neutralize the taxes on those gains.

So how can you turn your losses into tax relief, let’s understand with an example:

Let’s say you’ve got $15,000 in capital losses for 2024. You’ve already applied $3,000 to offset your ordinary income (the annual limit), but you’ve still got $12,000 in losses hanging around. Here’s where the strategy kicks in:

Imagine you own a rental property or stock with $12,000 in gains. By selling that asset, you can use your excess losses to completely offset the gain—meaning you pay zero taxes on that sale. In the end, you will see that you have essentially erased what could have been a tax bill on $12,000 worth of profit.

This is perfect if you’ve got a mixed bag of investments, some up, some down, and want to ensure you’re not paying more in taxes than necessary.

Additional Benefits: Rebalancing and Flexibility

One added bonus of this strategy is that it allows you to rebalance your portfolio. By selling appreciated assets, you can readjust your portfolio’s composition to better match your financial goals without worrying about the tax consequences. Plus, you’re not locked out of re-buying the asset. If you still believe in the long-term potential of the stock or property, you can get back in without triggering a penalty like you would with the wash-sale rule.

Also, if you’ve got capital loss carryovers from previous years, this is an excellent way to finally put them to work. It can feel frustrating sitting on unused losses, but by realizing gains through additional asset sales, you turn those losses into real tax benefits.

Limitations: When Selling Additional Assets Might Not Work

While this strategy offers some great advantages, it’s not always a perfect fit for everyone. There are a few things to keep in mind before diving in:

• Locking in Gains Could Backfire: If you’re selling assets purely for the tax benefit but the asset is set to continue appreciating, you could be missing out on future profits. It’s important to only sell assets that you’re okay with parting ways with or that have reached a point where further growth is unlikely.
• State Taxes Can Add Complexity: Depending on where you live, state taxes might complicate things. While federal rules allow for offsetting gains with losses, state tax laws might not be as generous. You could end up in a situation where you’re still paying state taxes on the gains, even if you’ve wiped them out federally.
• Market Timing Risks: Let’s say you sell a stock to realize a gain and plan to repurchase it immediately. If the market is particularly volatile, you run the risk of buying it back at a higher price, which could negate some of the tax benefit you just gained.

For example – 

Imagine selling $12,000 in stock gains to offset your losses, and then the stock price soars by 20% shortly after. Sure, you’ve reduced your 2024 tax bill, but you also missed out on a potential $2,400 profit by selling too soon. In this case, you might have been better off holding onto the stock and letting your capital losses carry forward for future years when you have fewer gains.

Exploring a Balanced Approach 

So, should you always rush to sell assets to offset your capital losses? 

Not necessarily. It’s about balance. If you’ve got assets that have appreciated but are unlikely to grow further, this strategy makes perfect sense. You wipe out your taxable gains and avoid a bigger tax bill. 

But if you think those stocks or properties will keep growing, it might be worth holding onto them and carrying over the loss to future years.

#Strategy 5. Gift Appreciated Stock to Family Members in Lower Tax Brackets

Gifting appreciated stock to family members in lower tax brackets can be a smart move when it comes to reducing your overall tax burden. It’s a win-win—you get rid of stock that has gained value and avoid paying hefty capital gains taxes, while your family members receive the gift and pay lower taxes when they sell it. Let’s break it down to understand why this strategy works so well and what you need to watch out for.

Why It’s Beneficial

When you gift appreciated stock to someone in a lower tax bracket, they sell the stock at their lower tax rate. Meanwhile, you avoid paying the higher tax rate you’d owe if you sold the stock yourself. This means you’re shifting the tax burden to a family member who is taxed at a lower rate, ultimately saving your family money.

• They Pay Less: For instance, if you’re in the highest capital gains bracket at 23.8%, and your parent or child is in the 0% or 15% bracket, they’ll pay much less when they sell the stock.
• Avoid the Hit: Instead of paying taxes on the stock appreciation, you transfer the value to someone else who can sell it at a lower tax cost. It’s a tax-efficient way to help them out while cutting down your own tax bill.

Taken for an example- 

Let’s say you own stock you bought for $5,000 a few years ago, and it’s now worth $20,000. That’s a $15,000 gain sitting in your portfolio. If you sell it, you’ll owe 23.8% on that $15,000 gain, which is around $3,570 in taxes.

But, what if your parent is retired and only earning a small income, placing them in the 0% capital gains tax bracket? You can gift them the stock. When they sell it, they pay 0% on that same $15,000 gain. That’s $3,570 you would’ve paid that your parent doesn’t have to. You get to help them financially while sidestepping the big tax hit.

It’s like transferring the tax bill to someone who doesn’t have to pay it, leaving more money in the family’s pocket.

The Limitations

Of course, there are some limitations to this strategy, and it’s not a perfect fit for every situation. For one, you need to make sure your family member is truly in a lower tax bracket. If they’re in a similar bracket to yours or have other income that could bump them into a higher one, this strategy loses its shine.

• Kiddie Tax Trap: If you’re thinking about gifting stock to your child, be aware of the kiddie tax. This tax applies to children under 24 who are still students, meaning they’ll be taxed at your rate on unearned income over a certain amount (like capital gains from stock). So, if your child is still subject to the kiddie tax, this plan might backfire, and you could end up with no real tax savings.
• Gift Tax Exemption: You also have to watch out for gift tax rules. You can gift up to $17,000 per person in 2024 without triggering the federal gift tax. If you go over that amount, it eats into your lifetime exemption, which could affect your estate planning. That being said, most people don’t hit the lifetime exemption, but it’s something to keep in mind if you’re making large gifts.

6. Donate Appreciated Stock to Charity for Maximum Tax Benefit

Donating appreciated stock to a charity instead of cash can be one of the most rewarding—and tax-savvy—ways to give. If you’ve held onto stocks that have grown significantly in value, this strategy not only supports the causes you care about but also saves you a lot in taxes. Let’s break it down and see why this can be such a win-win move.

The Double Benefit: Bigger Deduction, Zero Capital Gains Tax

When you donate appreciated stock, you unlock two major tax advantages.

First, you get to deduct the full fair market value of the stock at the time of donation, even if it’s grown significantly since you bought it. That means if you paid $1,000 for a stock and it’s now worth $11,000, you get to claim an $11,000 deduction on your taxes—not just the $1,000 you initially invested.

Second, you avoid paying capital gains taxes on the appreciation. Normally, if you sold that $11,000 stock, you’d have to pay taxes on the $10,000 gain. But by donating it directly to a charity, the charity can sell it without paying taxes, and you walk away with zero capital gains tax liability. It’s a total tax bypass!

Example: How It Works

Let’s say you bought stock for $5,000 a few years ago, and it’s now worth $15,000. If you decide to donate that stock to a 501(c)(3) charity, here’s what happens:

• You get a deduction for the full $15,000 on your tax return.
• You don’t have to pay capital gains tax on the $10,000 appreciation. Normally, if you sold it, you’d be hit with up to a 23.8% tax on that $10,000 gain, which comes out to $2,380. But by donating, you avoid that tax completely.

This means that you not only get a larger deduction than if you donated cash, but you also save thousands by skipping the capital gains tax.

Why This Strategy Beats Cash Donations

Let’s compare donating stock versus just writing a check. If you sold the stock for $15,000 and then donated that cash, you’d still get the same $15,000 deduction for the charitable donation. But—here’s the catch—you’d have to pay that $2,380 capital gains tax first. So, in reality, you’d only be donating about $12,620 after taxes.

By donating the stock directly, though, you avoid that tax hit, making the donation much more powerful and keeping your wallet happy.

Limitations and Things to Watch Out For

Now, while donating appreciated stock has serious upsides, there are a few limitations to keep in mind.

1. AGI Cap on Deductions: Your deduction for donating appreciated stock is limited to 30% of your adjusted gross income (AGI). So if your AGI is $100,000, the most you can deduct in one year from appreciated stock donations is $30,000. But don’t worry—if your donation exceeds this limit, you can carry the excess deduction forward for up to five years.
2. Holding Period: To get the full tax benefits, you need to have held the stock for at least one year. If you donate stock you’ve held for less than a year, the deduction is only for the cost basis (the amount you paid for the stock), not the fair market value. So, if you bought a stock for $1,000 and it’s now worth $5,000, you’d only be able to deduct $1,000 if you donate it within a year.
3. Don’t Donate Losses: As mentioned earlier, donating stocks that have lost value doesn’t give you the same advantage. If you’re sitting on a loss, it’s much better to sell the stock first, use the loss to offset other gains (or take the $3,000 deduction against ordinary income), and then donate the proceeds.

There you have if, If your goal is to maximize your tax savings, donating appreciated stock can be an absolute game-changer. It allows you to give more to charity while simultaneously trimming down your tax bill.

7. Don’t Donate Loss Stocks to Charity

Donating to charity is always a feel-good move, but when it comes to giving stocks that have dropped in value, you need to pause and think about the tax angle. If you’ve got stocks sitting in your portfolio that are worth less than what you paid for them, giving them directly to a charity might sound generous, but it’s not the best financial move.

Here’s why—and what you should do instead.

Sell the Stock First, Then Donate

If you donate a stock that’s lost value, you miss out on a key tax benefit: the ability to claim the loss. Let’s break it down. When you sell a stock for less than you paid, you can deduct that loss from your taxes. This is huge because you can use that loss to offset gains elsewhere in your portfolio, or even deduct it from your ordinary income (up to $3,000 per year).

Now, if you skip the selling step and simply donate the stock directly to charity, guess what? You don’t get to claim that loss. It’s like throwing a potential tax break out the window.

Understand with an Example Why Selling First is Better

Let’s say you bought some stock for $5,000 but today, it’s only worth $2,000. If you sell the stock, you can claim a $3,000 loss on your taxes. That $3,000 loss can either:

• Offset other capital gains (if you’ve got any), reduce your overall tax bill, or
• Deduct from your ordinary income if you’re short on gains, giving you up to a $3,000 tax break this year.

Once you’ve sold the stock and captured that loss, you can take the $2,000 proceeds and donate it to your favourite charity. Now you’ve unlocked two tax benefits:

1. You’ve deducted the $3,000 loss from selling the stock.
2. You get a tax deduction for donating the $2,000 cash to the charity.

It’s a win-win. You’ve turned a losing stock into a double tax break. 

But … Of course, this strategy has also its limitations. 

First off, if you don’t have any gains to offset, the impact of the loss might not be as significant. You can still use up to $3,000 of the loss to deduct from your ordinary income, but if you’ve got larger losses, the rest will carry over to future years.

Another thing to consider is that this strategy requires a bit of extra work. You need to sell the stock first and then donate the proceeds. It’s not complicated, but it’s an extra step that some people might overlook in their rush to meet year-end tax deadlines.

Why You Shouldn’t Just Donate the Stock

It’s tempting to take the easy route and just donate the stock directly, especially if you’re in a rush. But if the stock has dropped in value, you’re missing out on a valuable tax deduction. By selling the stock first, you keep control over the tax situation. You’re making sure you capture that loss, and then you can still follow through on your charitable goals by donating the proceeds.

Last-Minute Year-End Medical Plan Strategies for 2024-2025

As a small business owner with up to 49 employees, providing a medical plan for your team isn’t just a good idea—it’s a smart business strategy. While current tax law doesn’t mandate you to offer a plan, having one in place brings valuable benefits, including potential tax savings, improved employee morale, and an edge in talent retention.

Many business owners are unaware of the tax credits and savings that can be leveraged by structuring their medical plans efficiently. Here are six must-know strategies to maximize your medical plan’s tax benefits before the year ends.

1. Claim the Federal Tax Credits for Emergency Sick and Family Leave Payments

Did you know the IRS provides tax credits for employers who made emergency sick leave and family leave payments? If your business made these payments in 2020 or 2021 and you haven’t claimed the credits yet, you might be leaving money on the table.

The federal government provided a 100% tax credit for both required and voluntary payments made during the pandemic. This means if your business compensated employees for time off due to COVID-19-related reasons, those payments could qualify for tax relief.

Even though the pandemic feels like a distant memory, the tax credits are still valid. By amending your previous returns, you can reclaim significant savings that directly impact your 2024 taxes. Time is of the essence—consult with your tax professional today and review the IRS guidelines on emergency leave credits to ensure you’re not missing out on these crucial benefits.

Pro tip: Go through your payroll records carefully. If you paid employees for emergency leaves and forgot to claim the credit, you can amend your tax returns up to three years after the original filing date.

2. Maximize Your Section 105 Plan with End-of-Year Reimbursements

A Section 105 plan allows you to deduct medical reimbursements and lower your taxable income. If you have such a plan in place but haven’t been reimbursing expenses monthly, now is the time to catch up and lock in those deductions for 2024.

To ensure that your reimbursements are compliant with IRS rules, make a final lump sum reimbursement for 2024 before December 31. This step will allow you to capture eligible medical expenses for the year and include them in your deductions. Once you’ve done this, set up a monthly reimbursement schedule for 2025 to make the process easier and more tax-efficient moving forward.

Have trouble keeping track of reimbursable expenses? 

You’re not alone. ….

Many small business owners struggle with this, which is why it’s crucial to implement a streamlined system for tracking medical expenses. A Section 105 plan allows deductions not only for insurance premiums but also for out-of-pocket medical expenses, ensuring that you don’t overpay in taxes.

Tip: For owners of S-corporations, the rules are slightly different, so always consult with a tax professional to ensure compliance.

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3. Implement a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

If you’re looking for a flexible way to offer health benefits to your employees, implementing a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a great option. But be cautious—you need to set it up correctly before the end of the year to avoid penalties.

QSEHRAs allow you to reimburse employees for their individual health insurance premiums and other medical expenses. Employees love this option because it gives them the freedom to choose their own plans, and you get to control costs. However, missing the setup deadline could result in penalties of up to $50 per employee per day, which adds up quickly.

Late to the game? Not all is lost! You can still implement a QSEHRA for 2024 if you act fast and make sure it’s done by December 31. Keep in mind that QSEHRAs have contribution limits ($5,850 for individuals and $11,800 for families in 2024), so plan accordingly.

Check the IRS QSEHRA regulations to ensure you’re staying within legal limits and requirements.

4. Consider an Individual Coverage Health Reimbursement Arrangement (ICHRA)

If flexibility and greater control are what you’re after, an Individual Coverage Health Reimbursement Arrangement (ICHRA) may be a better fit than a QSEHRA. ICHRA allows you to offer a more tailored solution with greater allowances for employee coverage while offering tax savings for your business.

Unlike the QSEHRA, the ICHRA doesn’t have contribution limits, making it a more flexible option if you want to provide more substantial reimbursement for health-related expenses. This arrangement allows employees to select individual plans and be reimbursed for premiums, giving them more control and enabling you to retain top talent by offering valuable health benefits.

Setting up an ICHRA for 2024 requires timely action. You must notify employees and have everything in place by the end of the year to reap the benefits. Not sure whether ICHRA is right for your business? Compare it against your existing health benefit strategy and consult the official IRS guidelines on ICHRA to make an informed decision.

5. Get Your S Corporation’s Health Insurance Deductions Above the Line

If you operate your business as an S corporation, you’ve got some extra steps to follow to claim a health insurance deduction on your personal Form 1040. But the effort is worth it—getting this right can save you a significant amount in taxes.

For 2024, to claim the above-the-line deduction, your S corporation must (1) pay for or reimburse your health insurance premiums and (2) include those amounts on your W-2 form as taxable income. This needs to be done before December 31 to ensure your eligibility.

Once these steps are completed, you’ll be able to claim the deduction directly on your Form 1040, reducing your personal taxable income. It’s a win-win situation—you maintain compliance, and you get tax savings.

Key takeaway: Make sure your health insurance reimbursement happens before year-end and the expense is properly reported on your W-2 form. Failure to do so will result in lost deductions, costing you more in taxes.

6. Claim the Small Business Health Care Tax Credit

The Small Business Health Care Tax Credit offers a substantial tax break for qualifying employers. If you provide group health insurance to your employees, you could be eligible for a tax credit worth up to 50% of the premiums you paid for 2024.

To qualify, your business must meet specific criteria, including having fewer than 25 full-time equivalent employees, paying an average wage of less than $59,000 per year, and covering at least 50% of employee health insurance premiums.

If your business qualifies, you can claim this credit on your year-end tax return, reducing the overall cost of offering health benefits. And don’t forget—this credit can be applied retroactively for previous tax years, so it’s worth reviewing your prior filings to ensure you didn’t miss out.

For more information, visit the IRS Small Business Health Care Tax Credit page to check if your company is eligible and learn how to claim the credit.

Last-Minute Year-End Retirement Deductions for 2024-2025

As the year-end approaches, it’s crucial to maximize retirement contributions and reduce tax liabilities. With a few strategic moves before December 31, you can set yourself up for future financial success. Let’s explore five tax-saving strategies for 2024-2025.

1. Establish Your 2024 Retirement Plan

If you haven’t set up your 2024 retirement plan yet, you’re missing out on a major opportunity to save both for your future and on taxes. Let’s break down why establishing your retirement plan before the end of the year is essential, how it can benefit you, and what limitations you should be aware of.

The Benefits of Setting Up Your Plan

Setting up a retirement plan for 2024 can yield significant tax benefits. For instance, if you’re a business owner or self-employed, you can contribute as both the employer and the employee. This gives you a dual advantage by allowing for larger contributions than most people realize.

Here’s a real example of how it works:

Let’s say you’re a business owner with a solid income. You can contribute up to $66,000 in 2024 under a 401(k) plan, combining both the employer and employee portions. That’s a massive boost to your retirement savings and a corresponding reduction in your taxable income. Plus, by putting away more in tax-advantaged accounts, you lower your current tax bill while building a nest egg for the future. Win-win!

Another benefit of setting up your retirement plan now is the ability to make catch-up contributions if you’re over 50. In 2024, this catch-up contribution limit for a 401(k) is an additional $7,500, allowing you to contribute a total of $73,500 if you’re 50 or older​. This is huge for those who may have started saving late and need to accelerate their retirement savings.

And it’s not just about tax deductions. Establishing a retirement plan, especially for a business, also helps attract and retain quality employees. Offering a 401(k) or SEP IRA plan with employer contributions can make your company more appealing to potential hires and boost employee satisfaction.

Limitations to Consider

While the benefits are substantial, it’s important to note some limitations. For example, not all businesses or individuals can contribute the maximum amount every year. Your income level plays a crucial role in determining how much you can contribute. If your business had a slow year, you may not be able to contribute as much as you’d like, limiting the tax deduction.

Another limitation is administrative complexity. Setting up a 401(k) or a more advanced plan like a defined benefit pension plan can involve administrative fees, paperwork, and ongoing maintenance costs. These costs can eat into the financial benefits of the plan, especially for small businesses with limited cash flow. So, if your company isn’t ready to shoulder these extra expenses, it might be better to start with something simpler, like a SEP IRA or a SIMPLE IRA, both of which have lower administrative costs.

How It’s Beneficial Despite Limitations

Even with these limitations, the advantages often outweigh the drawbacks. For instance, if you have a small business and can’t contribute the maximum amount every year, you still benefit from the contributions you make. Let’s say you contribute $30,000 instead of the full $66,000 in 2024. That’s still $30,000 you’ve shielded from taxes, plus it’s growing tax-deferred in your retirement account. This deferral alone can save you thousands of dollars in taxes every year.

For example, if you’re in a 32% tax bracket, that $30,000 contribution could save you close to $9,600 in taxes this year. Now, imagine if you had opted not to set up a retirement plan at all—you’d be paying that extra $9,600 to the IRS instead of funnelling it into your future financial security.

2. Leverage the Retirement Plan Start-Up Tax Credit (Up to $15,000)

Starting a new retirement plan for your small business comes with fantastic tax benefits, thanks to the Retirement Plan Start-Up Tax Credit. For 2024, you can earn a credit of up to $15,000 over three years, making this one of the most valuable incentives for small businesses looking to support their employees’ futures while saving on taxes.

How Does the Credit Work?

Let’s break it down. The credit applies to qualified start-up costs, which include the expenses associated with setting up and administering the retirement plan, along with educating your employees about it. For the first three years, the credit can be as high as 50% of these costs, with a cap of $5,000 per year.

But wait, it gets better. If you add an automatic enrollment feature to your plan, which encourages employee participation, you can tack on an additional $500 per year for up to three years, bringing the potential total to $15,000​.

Why Is This Credit Beneficial?

This tax credit isn’t just free money from the government—it’s a powerful way to reduce costs when offering retirement benefits. By setting up a retirement plan, you’re attracting and retaining top talent, increasing employee satisfaction, and improving your company’s competitive edge.

For small business owners, cash flow can be tight, so every dollar saved matters. This credit effectively cuts the cost of establishing and maintaining a plan in half for the first three years, making it easier to get started without worrying about excessive up-front costs.

Example: How It Works in Real Life

Let’s say you’re a small business owner with 10 employees, and you decide to establish a 401(k) plan this year. You incur $4,000 in administrative costs and another $1,000 to provide educational materials to your team about the plan.

In this scenario, the IRS allows you to claim 50% of those costs, so you can deduct $2,500 from your tax bill just for getting the plan off the ground. If you include an auto-enrollment feature, you can add an extra $500 credit, bringing your total savings to $3,000 for the year.

And don’t forget—you can repeat this credit for the next two years, potentially earning a total of $9,000 over three years just for doing the right thing by your employees.

Limitations: When It Doesn’t Work in Your Favor

Of course, like any tax benefit, there are limitations to be aware of. One key limitation is that this credit is only available for small businesses with 100 or fewer employees. If your business grows beyond this, the credit phases out.

Additionally, the credit doesn’t cover all costs. For example, it only applies to 50% of your start-up costs, meaning you’ll still need to cover the other half. If you’re setting up a more complex retirement plan like a Defined Benefit Plan, the administrative costs can be significantly higher than with a simple 401(k) or SEP IRA, so even with the credit, there could be substantial out-of-pocket expenses.

Another catch is that this credit is non-refundable, meaning it can only reduce your tax liability to zero—it won’t result in a tax refund if the credit exceeds what you owe.

3. Claim the Small Employer Pension Contribution Credit:

The Small Employer Pension Contribution Credit is one of the most enticing benefits for small business owners. This credit is a game-changer because it rewards you for contributing to your employee’s retirement savings, offering financial relief while helping to secure their futures.

The Benefits: Encouraging Retirement Savings

Starting in 2024, you can claim up to $1,000 per employee for contributions you make to their retirement plans. This includes common plans like a 401(k), SIMPLE IRA, or SEP. The SECURE Act 2.0 extended this credit to help businesses cover the costs of retirement contributions, making it more financially feasible for small employers to offer these benefits​.

Let’s break down why this credit is so helpful:

• Boost Employee Retention: Offering a solid retirement plan can help you keep your team happy. When employees see you’re investing in their future, they’re more likely to stick around. This credit makes it easier for you to support them without stretching your budget.
• Offset Costs: The credit directly offsets your costs, especially in the first two years. In year one, the credit covers 100% of your contributions (up to $1,000 per employee). By year two, it still covers the full amount, so if you contribute $500 to each employee’s plan, you get that $500 back through the credit.
• Long-Term Incentives: While the credit decreases in percentage over time (75% in year three, 50% in year four, and 25% in year five), it still allows you to ease into higher contributions without feeling the full financial burden right away.

How It Works: A Real-World Example

Let’s imagine you run a small tech company with 20 employees. You’ve decided to set up a 401(k) retirement plan for your team, and you contribute $1,000 for each employee.

Year One: You contribute $20,000 ($1,000 for each of the 20 employees). Under the Small Employer Pension Contribution Credit, the IRS gives you a $20,000 tax credit to offset those contributions. This means you get back every dollar you contributed.

Year Two: You contribute the same amount ($1,000 per employee). Again, you get a credit for 100% of your contributions, so another $20,000 saved in taxes.

Year Three: Now, the credit starts to phase down. You contribute $20,000, but the IRS only gives you a 75% credit, so you receive $15,000 as a tax credit. While the benefit is smaller, you’re still getting significant relief.

Over the first three years, you’ve contributed $60,000 but received $55,000 in tax credits. This means you’ve only effectively paid $5,000 for your employees’ retirement savings. That’s a substantial return on investment!

Limitations: Not for Everyone

While this credit is highly beneficial, there are some limitations to consider:

1. Business Size Restrictions: The credit is designed for small businesses with fewer than 50 employees. Once your business grows beyond that, the benefit starts to phase out. For employers with 51-100 employees, the credit decreases by 2% for each additional employee over 50. If you have more than 100 employees, you won’t be eligible for the credit at all.
2. Income Cap for Employees: There’s also an income restriction for the employees you’re contributing for. Any employee who earns more than $100,000 in 2024 doesn’t qualify for the employer contribution credit. So if your workforce is primarily higher-earning professionals, you won’t be able to claim the credit for them​.
3. Defined Benefit Plans: The credit doesn’t apply to defined benefit plans (like pensions), which can be a drawback for some businesses. If you’re contributing to these types of plans, the contributions won’t be eligible for this credit.

Why It’s Still Worth It

Despite these limitations, the Small Employer Pension Contribution Credit is a powerful tool for small businesses that want to offer competitive benefits without breaking the bank. It gives you a structured way to introduce retirement savings for your employees, with the bulk of the financial burden lifted in the early years. And even after the five-year mark, the benefits of contributing to a retirement plan—such as better employee retention and tax-deferred savings—still make it a worthwhile investment.

By taking advantage of this credit, you’re not just building your employees’ future; you’re securing financial relief for your business, too. It’s a win-win.

For more details, you can always check the IRS guidelines on the official website or refer to the Department of Labor.

4. Automatic Enrollment Tax Credit

Adding an automatic enrollment feature to your retirement plan not only simplifies the onboarding process for your employees but also comes with a handy incentive—an automatic enrollment tax credit of up to $500 per year for up to three years. This tax credit is designed to encourage small businesses to adopt automatic enrollment in plans like 401(k)s, making it easier for employees to save for retirement while providing some tax relief for the employer.

How the Credit Works

Beginning in 2024, eligible employers can claim this $500 tax credit each year for the first three years they implement automatic enrollment in their retirement plans. This means if you decide to add this feature to a 401(k) or SIMPLE IRA plan, you could be looking at a $1,500 tax credit over three years.

Example: Let’s say you run a small business with 25 employees and you introduce automatic enrollment in your 401(k) plan starting in 2024. By doing so, you will immediately qualify for a $500 tax credit in the first year, followed by another $500 for the next two years, even if the cost to add automatic enrollment is negligible. This tax relief can help offset administrative costs while boosting employee participation in the retirement plan.

Why Automatic Enrollment Is Beneficial

The benefits of automatic enrollment are twofold. First, it gets more employees involved in saving for their retirement, especially those who might otherwise procrastinate or forget to enrol. Research shows that auto-enrollment leads to higher participation rates, making it an effective tool for improving long-term financial security for workers.

From the employer’s perspective, automatic enrollment is a way to ensure your employees are taking advantage of retirement savings opportunities without needing constant reminders or nudging. It’s like giving your employees a gentle push towards their future financial stability while scoring a tax break.

And there’s more—starting in 2025, the SECURE 2.0 Act mandates that new retirement plans must include automatic enrollment. By implementing it early, you’re not only staying ahead of compliance requirements but also benefiting from tax incentives.

Limitations and Considerations

While automatic enrollment is great for boosting participation, it’s not without limitations. The $500 tax credit is relatively small, and for larger businesses, this might not make a significant dent in costs, especially if the company already has a high participation rate or sophisticated retirement plans in place.

Additionally, automatic enrollment doesn’t mean employees are locked in—they can still opt out if they prefer not to participate. This could result in lower-than-expected participation rates for employers who are relying solely on auto-enrollment to boost engagement. Moreover, for businesses with limited payroll or financial flexibility, enrolling all employees into a retirement plan might create additional administrative complexity and costs.

However, despite these potential hurdles, the tax credit offers a win-win situation for businesses that are looking to grow employee participation in their retirement plans without taking a hit on taxes.

5. Convert to a Roth IRA

When you convert your traditional IRA or 401(k) to a Roth IRA, you’re making a move that could provide you with serious tax benefits down the line. Here’s why this conversion might be the right fit for you and how you can use it to your advantage:

Why Convert to a Roth IRA?

The Roth IRA has become a go-to strategy for many who want flexibility in their retirement savings. The big win with Roth IRAs is that all future withdrawals are tax-free. You pay taxes upfront when converting, but afterward, your money grows tax-free, and qualified withdrawals (after age 59 1/2 and holding the account for at least five years) aren’t taxed. This gives you a hedge against future tax increases, making a Roth IRA particularly valuable if you think your tax bracket might be higher when you retire.

Example of How It Works

Let’s say you have $100,000 in a traditional IRA. You convert that to a Roth IRA in 2024. The conversion amount adds to your taxable income for the year. If you’re in the 22% tax bracket, you’ll owe around $22,000 in taxes upfront. That may seem steep, but the long-term benefit comes when you start withdrawing from your Roth IRA during retirement—none of those withdrawals will be taxed.

Now imagine the Roth IRA grows to $300,000 by the time you retire. All that growth is tax-free! If you were in a higher tax bracket during retirement, like 28%, you just avoided paying a lot more in taxes on those future withdrawals.

The 2024 Change

Starting in 2024, Roth 401(k)s and Roth 403(b)s will no longer have Required Minimum Distributions (RMDs). This adds another layer of flexibility, meaning you can leave the money in your Roth account for as long as you want, allowing it to grow without being forced to withdraw at a specific age (like with traditional IRAs).

Limitations of a Roth IRA Conversion

But here’s the flip side—you need to be ready for the tax hit now. Converting a traditional account to a Roth IRA can bump you into a higher tax bracket for the year, especially if you’re converting a large amount. This is why it’s essential to consider if you have the cash on hand to cover the extra taxes.

Additionally, if you withdraw converted funds within five years of the conversion, you could face a 10% early withdrawal penalty on the taxable portion unless you’re 59 1/2 or older. Each conversion starts its own five-year clock, so keep this in mind if you’re thinking about withdrawing funds early.

How to Plan for the Conversion

To minimize the tax burden, consider spreading your conversion over several years instead of converting all at once. This can help keep you in a lower tax bracket while still benefiting from tax-free growth later on. Some people choose to convert only enough each year to avoid pushing themselves into a higher tax bracket.

Last-Minute Section 199A Tax Reduction Strategies 

When planning for the 2024 tax year, it’s essential to maximize your Section 199A deduction, especially as the end of the year approaches. Ignoring this deduction could lead to missing out on valuable tax savings. Here are three key strategies that can help you reduce your taxable income and boost your Section 199A deduction.

First Things First: Assess Your Taxable Income

For 2024, if your taxable income exceeds $190,050 for single filers or $380,100 for joint filers, certain limitations kick in that could impact your Section 199A deduction. Above these thresholds, factors like your business type, wages paid, and property owned can reduce or even eliminate the deduction.

If your deduction is falling short of 20% of your qualified business income (QBI), there are still strategies available to you before the year ends.

#Strategy 1: Harvest Capital Losses

Capital gains add to your taxable income, which impacts the size of your Section 199A deduction. Harvesting capital losses is one way to reduce this taxable income and optimize your deduction, especially in 2024. By realizing (or “harvesting”) losses on underperforming investments before the end of the year, you can offset gains and reduce taxable income, which in turn can increase your Section 199A deduction.

How It Works: An Example

Imagine you had a good year with your investments and accumulated $50,000 in capital gains, but you also have $20,000 in unrealized losses on other stocks. If you do nothing, your $50,000 capital gain is fully taxable.

Let’s say your taxable income, including the capital gains, is $390,000 (above the 2024 Section 199A threshold of $380,100 for joint filers). This means your Section 199A deduction will face limitations, possibly shrinking significantly.

However, if you sell those losing stocks and realize a $20,000 loss, your taxable capital gains are reduced to $30,000. This brings your taxable income down to $370,000, placing you back under the threshold. As a result, you might now be eligible for a larger Section 199A deduction, potentially up to the full 20% of your QBI.

Benefits Beyond Section 199A

Harvesting capital losses doesn’t just help with your Section 199A deduction. If your capital losses exceed your capital gains, you can also use the excess losses (up to $3,000 annually) to offset ordinary income, reducing your overall tax bill even further. Any losses that exceed this limit can be carried forward to future tax years, creating ongoing tax benefits.

In addition to increasing your Section 199A deduction, this strategy provides an opportunity to re-balance your investment portfolio without incurring a significant tax hit.

IRS Updates for 2024

For the 2024 tax year, the IRS has kept the basic rules for harvesting capital losses largely unchanged. You can still use realised losses to offset gains dollar-for-dollar, and if you have more losses than gains, the extra losses can offset up to $3,000 of ordinary income. The most important factor for the Section 199A deduction remains your taxable income, so reducing that income with capital losses is still a valid approach​.

Limitations: When This Might Not Work

While harvesting losses sounds like a no-brainer, there are some situations where this strategy might not provide the desired benefits.

• Wash Sale Rule: If you repurchase the same or substantially identical security within 30 days of selling it for a loss, the IRS will disallow the loss under the wash sale rule. This can be a pitfall if you plan to reinvest quickly in the same assets.

• Minimal Losses: If your capital losses aren’t large enough to push your income below the Section 199A threshold, this strategy won’t have as big an impact on your deduction. For example, if you’re only slightly over the income threshold and your losses are small, the reduction in taxable income may be too minimal to improve your Section 199A deduction significantly.
• Future Capital Gains: Another consideration is that carrying forward too many losses into future years could reduce your ability to offset future capital gains, which may be taxed at favourable rates. In some cases, it may be more beneficial to accept higher taxable income in one year to preserve losses for future years when tax planning may be more complex.

#Strategy 2: Increase Charitable Contributions

#DidYouKnow that charitable giving in the U.S. is expected to reach $484.4 billion in 2024, a moderate increase of 3.4% from 2023. (Source: Giving USA) Join the cause, visit https://t.co/YkYkOEDhMs to get started. pic.twitter.com/7KLMMj880z

— YouGiveGoods (@YouGiveGoods) March 29, 2024

Charitable contributions can be a win-win in your tax strategy. Not only do you get to support causes close to your heart, but it also directly reduces your taxable income — which is the critical figure when calculating your Section 199A deduction. The beauty of this strategy is how simple it is: if you’re itemizing deductions, you can increase those deductions just by giving more to charity. This directly affects your taxable income, helping you slide under the Section 199A income thresholds.

But let’s break this down with more clarity.

How Charitable Contributions Help

Charitable donations work because your Section 199A deduction is linked to your total taxable income. The IRS lets you deduct qualified charitable contributions from your taxable income, reducing the overall amount. By doing this, you’re potentially lowering yourself under the income threshold that caps your Section 199A deduction. The less taxable income you report, the higher the chance that you can maximize your 20% deduction.

For instance, if you’re teetering near the income threshold — let’s say you’re earning $370,000 in 2024 as a married couple (just under the joint-filing limit of $380,100) — a $10,000 charitable contribution could bring you under the threshold, allowing you to claim the full Section 199A deduction. 

Without that charitable deduction, you could be hit with limitations that reduce your total deduction significantly.

Example of a Benefit

Imagine you’re running a profitable business, and your total taxable income for the year is $390,000, which is over the Section 199A limit. Without doing anything, you might see your deduction cut down because you exceeded the income threshold. 

However, let’s say you donate $15,000 to charity by the end of the year. That lowers your taxable income to $375,000, now putting you in a position to maximize your 20% deduction on qualified business income. By reducing taxable income, this simple contribution has just saved you from losing a big chunk of your Section 199A benefit.

IRS Updates for 2024

The IRS has made some minor tweaks to charitable contribution limits, but the basics remain the same. You can typically deduct up to 60% of your adjusted gross income (AGI) for cash contributions made to qualifying organizations. It’s crucial to double-check with the IRS guidelines for 2024 to make sure you’re within limits and to confirm that the organization you’re donating to qualifies for deductions​.

Limitations of This Strategy

While increasing your charitable contributions is a handy tool, there are some limitations. For one, it only works if you’re already itemizing deductions. If you take the standard deduction, charitable contributions won’t have an impact on your taxable income. In addition, the IRS places a cap on the amount you can deduct based on your AGI. 

As of 2024, this cap generally sits at 60% for cash donations, which can restrict how much you’re able to contribute toward reducing your income. Plus, while this strategy is a great way to lower your taxable income, it’s not a fix-all. If your taxable income is far above the Section 199A threshold, even significant charitable donations might not be enough to fully mitigate the deduction limitations.

# Strategy 3: Invest in Business Assets

One of the most effective ways to maximize your Section 199A deduction is by investing in business assets. This move can significantly reduce your taxable income while also boosting your qualified property, leading to a larger deduction. For small business owners, this is a powerful strategy because it serves two purposes: it lowers your tax bill now and increases your future deduction potential.

Benefits of Investing in Business Assets

Under Section 179, you can write off 100% of most new and used business property immediately. For 2024, this includes equipment, software, and other tangible property used in your trade or business. This accelerated expensing not only reduces your taxable income but also keeps your cash flow healthy since you avoid the long depreciation process over multiple years.

If Section 179 doesn’t apply, bonus depreciation lets you write off 80% of the asset’s value in the first year, allowing for substantial deductions. This approach can help you stay under the Section 199A income threshold, making you eligible for the maximum 20% deduction on your qualified business income.

For example, say you purchase $100,000 worth of machinery for your manufacturing business in November 2024. By using Section 179, you can deduct the entire $100,000 this year, lowering your taxable income by that amount. If your taxable income was previously $390,000, this reduction would bring you down to $290,000—well below the $380,100 joint-filing threshold for Section 199A.

This shift could increase your Section 199A deduction from a potentially reduced amount (due to exceeding the income limit) to the full 20% of your qualified business income (QBI). So, not only are you lowering your tax bill by writing off the asset, but you’re also maximizing a key deduction.

IRS Updates for 2024

The IRS continues to adjust the income thresholds and expensing limits for Section 199A and Section 179. For 2024, the deduction limits under Section 179 are set at $1.16 million, with a phase-out threshold starting at $2.89 million​(

These updated numbers offer even more room for deductions, making asset purchases an even more appealing strategy for businesses looking to maximize tax savings.

It’s also important to note that bonus depreciation, previously 100%, has decreased to 80% for 2024. Though this reduction slightly limits the deduction potential, it still offers a significant tax benefit for larger purchases, particularly in industries requiring expensive equipment or technology​.

Potential Limitations

While this strategy sounds like a win-win, there are some caveats to consider. First, Section 179 expensing has limits. If you purchase assets exceeding $2.89 million, the amount you can deduct starts to phase out. This means if you’re a larger business with substantial asset purchases, you might not get the full benefit of Section 179.

Additionally, if your business isn’t generating enough income, fully expensing assets in the current year could result in wasted deductions. In that case, it might make more sense to spread the depreciation over future years when your business is more profitable.

Another limitation comes into play if your Section 199A deduction calculation relies on the 2.5% of unadjusted basis in qualified property. Here’s how it works: for some businesses, the Section 199A deduction hinges on either wages paid or 2.5% of your unadjusted basis in qualified property. While buying new assets can increase your property base, it only makes a difference if your deduction is calculated using that formula. If your business already meets the wage or income thresholds, additional property may not increase your deduction significantly.

Last-Minute Year-End Tax Strategies for Marriage, Kids, and Family in 2024-2025

Thinking about getting married, divorced, or making financial gifts to family members before the year ends? Now’s the time to act! December 31, 2024, is a key date in tax planning for those big life changes. Making smart moves now can save you a bundle come tax time. Whether it’s your marriage status, your children’s earnings, or gifts to loved ones, strategic planning can help you keep more of your hard-earned money.

So, here are five essential tax strategies to consider before we say goodbye to 2024.

1. Put Your Children on Payroll: A Smart Tax Move

If you run a business, putting your children on your payroll can be a game-changer when it comes to tax savings. This strategy doesn’t just teach your kids the value of hard work—it also offers significant financial benefits for you and your family.

How This Works:

For starters, if your child is under 18, you won’t have to pay payroll taxes on their income if you run your business as a Schedule C sole proprietor or a spousal partnership. That’s right, you avoid paying FICA (Social Security and Medicare) taxes on their wages, and neither does your child. This can add up to substantial savings over time.

Double Savings with an IRA:

But that’s not all. By putting your child on the payroll, they earn income that makes them eligible to contribute to a traditional IRA. Here’s the real kicker: they can contribute enough to eliminate all federal income taxes on earnings up to $20,850 in 2024. Not only are you teaching them to save for the future, but you’re also helping them shelter their income from Uncle Sam. This is a fantastic way to put more money in their pockets and less in the IRS’s coffers.

A Real-Life Example:

Let’s break it down with an example. 

Imagine you own a small coffee shop, and your 16-year-old son works a few hours a week helping with cleaning, stocking, and customer service. You pay him $12,000 for the year. Since he’s under 18 and you’re filing as a sole proprietor, you’re not required to pay payroll taxes on his wages. This saves you about 15.3% in taxes (the combined Social Security and Medicare tax). That’s a savings of $1,836 right there!

Now, let’s say your son contributes a portion of his earnings to a traditional IRA. With this strategy, he can reduce his taxable income to a level where he owes zero in federal income tax. So, not only have you saved on payroll taxes, but your son’s tax burden is wiped out as well. It’s a win-win!

Limitations to Keep in Mind:

Of course, like any tax strategy, putting your child on payroll isn’t without its limitations. One big factor to consider is how your business is structured. If you operate as a corporation, both you and your child will still need to pay payroll taxes, which can reduce the overall benefit. While the strategy still works, the savings won’t be as high as they would be for sole proprietors or spousal partnerships.

Another thing to keep in mind is that your child actually needs to do legitimate work for your business. The IRS won’t allow you to put them on payroll just to dodge taxes. They need to be performing tasks that are reasonable for their age and skills. So, paying your 10-year-old $10,000 for filing papers might raise some red flags.

Lastly, even though your child’s earnings are tax-free up to a point, if they start earning more than the standard deduction, they could start owing taxes. So, it’s essential to monitor how much you’re paying them each year and plan accordingly.

Why It’s Worth It:

Despite these limitations, the benefits of putting your children on payroll far outweigh the downsides for many families. It’s a great way to cut your tax bill while giving your kids real-world work experience and teaching them the importance of saving for their future. And when done correctly, it’s all perfectly legal—and even encouraged—as part of your family’s financial planning.

So, if you’re running a small business, consider putting your kids to work in 2024. Just make sure you’re paying them a reasonable wage for their contributions, and you’ll be amazed at the tax savings you can reap.

2. Get Divorced After December 31

If you’re in the middle of a divorce or separation, the timing of when you finalize things can seriously impact your taxes. Waiting until after December 31 can be a strategic move, especially when you consider how the IRS views your marital status.

Why December 31 Matters

The IRS doesn’t care about when you actually split up during the year. For tax purposes, your marital status on December 31 decides your filing status for the entire year. That means if you’re still married on New Year’s Eve—even if your divorce is imminent—the IRS will treat you as married for 2024. This is where things get interesting, especially if you could benefit from filing a joint tax return.

Benefits of Delaying Divorce

Filing jointly usually provides some great perks, especially for couples with a big difference in incomes or who are in different tax brackets. Here’s how you can benefit by waiting until January 2025 to finalize the divorce:

• Lower Combined Tax Bracket: Joint filers get a more generous tax bracket compared to single filers. If your income and your spouse’s income combined push you into a lower tax bracket, you’ll pay less in taxes together than if you filed separately.
• Higher Deductions: Joint filers get a higher standard deduction ($27,700 for 2024) compared to single filers ($13,850). This alone could mean thousands of dollars in tax savings.
• Tax Credits: Filing jointly may give you access to credits like the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), or the American Opportunity Tax Credit (AOTC) for education expenses. Some of these credits have income limits that are higher for joint filers.

Example: How Delaying Divorce Saves Money

Let’s break this down with an example:

Sarah and Mike have been going through a rough patch and are heading for divorce. Sarah makes $150,000 a year, while Mike earns $40,000. If they finalize their divorce before December 31, Sarah will file as a single taxpayer for the 2024 tax year. This means she’s in the 32% tax bracket and will owe quite a bit in taxes.

However, if they wait until January 2025 to finalize the divorce and file jointly for 2024, their combined income ($190,000) puts them in the 24% tax bracket. Not only will they save money by being in a lower tax bracket, but they also get the larger standard deduction, reducing their taxable income even more. In this case, waiting just a few more weeks could save them thousands of dollars on their taxes.

The Alimony Factor

While delaying the divorce can bring joint-filing benefits, you also need to think about how alimony plays into this. The rules around alimony changed under the Tax Cuts and Jobs Act (TCJA) of 2017:

• If your divorce was finalized before 2019, the spouse paying alimony can deduct those payments, and the receiving spouse has to report the alimony as taxable income.
• But for divorces finalized after December 31, 2018, alimony payments aren’t tax-deductible for the payer, and the recipient doesn’t have to report them as income.

So, if you’re the one paying alimony, waiting might not be helpful, as you’ll lose that tax deduction under the new rules.

Limitations: When Waiting to Divorce Isn’t the Best Idea

While waiting until after December 31 can be a great tax-saving move, it doesn’t always work out for everyone. Here are a few scenarios where it might not be beneficial:

• Incomes Too High: If both you and your spouse have high incomes, filing jointly could actually push you into a higher tax bracket. In this case, it might make more sense to finalize the divorce before the end of the year and file as single taxpayers.
• Alimony Changes: If you’re the one receiving alimony and you’re hoping to minimize your taxable income, finalizing your divorce earlier could work to your advantage. The new tax rules mean that alimony isn’t taxable income for recipients anymore, so if you’re finalizing after 2018, there’s no need to worry about it increasing your tax burden.
• Splitting Assets: Sometimes, delaying a divorce can complicate how you split assets, especially if you’re eager to sell a jointly-owned home or cash in on investments. It’s important to balance the tax benefits with your personal and financial goals.

To sump it up, ff you’re stuck on whether to wait or finalize your divorce, here’s the thing: it really depends on your unique situation. Running the numbers with a tax professional is crucial. It’s not just about taxes; it’s about what works best for you emotionally, financially, and legally.

BOOK YOUR FREE CONSULTATION CALL WITH OUR TAX PROFESSIONAL

3. Stay Single for Mortgage Deductions

If you’re in a committed relationship but not yet married, there’s a surprising tax advantage to staying single—especially when it comes to mortgage interest deductions. Most people think marriage is the next step when you buy a house together, but when it comes to taxes, waiting to get hitched can actually save you a lot of money on mortgage interest deductions. Here’s how and why staying single might be the better move—at least for now.

Source: FORBES

More Interest Deducted = Bigger Tax Savings

When two unmarried people co-own a house, the IRS allows each person to deduct mortgage interest on up to $750,000 in home loans (if the house was purchased after December 15, 2017). That’s because as single individuals, you each get your own deduction. So together, you can deduct interest on up to $1.5 million of the mortgage. That’s double what married couples are allowed to deduct, as they’re capped at $750,000 combined.

Let’s break it down with an example:

You and your partner buy a house together for $1.5 million, and you’re both on the mortgage. If you stay single, you each get to deduct interest on up to $750,000 of that mortgage, meaning the entire $1.5 million mortgage is covered for tax deduction purposes. That’s a big deal because it can lower your taxable income significantly, potentially saving you thousands of dollars.

But let’s say you tie the knot before the end of the year. Suddenly, the IRS considers you one single tax entity. 

Now, instead of each of you getting $750,000 worth of deductions, you’re stuck with a joint cap of $750,000. That means half of your mortgage no longer qualifies for the interest deduction. 

Benefits: Why Staying Single Pays Off

1. Double the Deduction: As two single people, you both get to claim the full mortgage interest deduction, which means twice the tax savings.
2. More Flexibility: Being unmarried gives you flexibility when filing taxes. If one of you has a much higher income than the other, the lower earner can still take advantage of deductions that might otherwise be limited in a joint return.
3. Lower Overall Tax Burden: Staying single can sometimes help you avoid what’s known as the “marriage penalty.” This happens when your combined income pushes you into a higher tax bracket. By filing separately, each of you might stay in a lower bracket, leading to overall savings.

Limitations: The Flip Side of Staying Single

Of course, staying single to maximize mortgage deductions has its drawbacks. It might not be the right choice for everyone, and here’s why:

1. Higher Tax Brackets: If you and your partner both earn good incomes, staying single could result in each of you paying more taxes on your individual incomes than you would as a married couple. When you file jointly, you can combine deductions and take advantage of lower overall tax rates.
2. Estate Planning Complications: Unmarried couples might face challenges with estate planning. If something were to happen to one partner, the surviving partner might not be entitled to the same benefits that a spouse would be (such as the unlimited marital deduction, which allows assets to pass tax-free to a spouse). This is a major consideration if you and your partner are building a life and assets together.
3. Limited to Mortgage Deductions: The tax benefits of staying single mostly revolve around mortgage interest deductions. If your overall financial situation is complicated—such as having kids or large investments—being married could actually save you more in the long run.

What’s the Best Move?

The decision to stay single or get married before the year-end isn’t just about love—it’s also about the numbers. If you and your partner are trying to decide what’s best for your tax bill, sit down and crunch the numbers together. You’ll want to look at all aspects of your financial life, including mortgage deductions, income brackets, and future plans (like estate planning or starting a family).

For some couples, the mortgage interest deduction savings might make it worth postponing marriage. But for others, the benefits of filing jointly might outweigh the perks of staying single.

4. Stay Single for Bigger Mortgage Deductions

One of the less obvious perks of staying single, at least from a tax perspective, is the ability to maximize mortgage interest deductions. This strategy can save you serious cash, especially if you and your partner own a home together but aren’t legally married. Here’s how it works and why you might want to rethink tying the knot if you’re sharing a mortgage.

Source: Tax Foundation

The Double Deduction Advantage

When you’re unmarried and co-own a home with someone, the IRS treats each of you as individuals for tax purposes. This means that both of you can deduct interest on up to $1 million of mortgage debt (if you bought the home before December 15, 2017). Together, that’s $2 million of mortgage debt, effectively doubling what a married couple could deduct, which caps out at $1 million total.

Let’s break it down:

• Pre-2017 Mortgages: If you and your partner bought your home before December 15, 2017, and you’re both on the mortgage, you can each claim interest deductions on up to $1 million of the mortgage. So, instead of being capped at $1 million total like a married couple, you get a combined deduction on $2 million of mortgage debt.
• Post-2017 Mortgages: For homes bought after December 15, 2017, the deduction limit drops to $750,000 per person. But again, if you’re not married, that limit doubles to $1.5 million between the two of you.

Example: The Numbers Speak for Themselves

Let’s say you and your partner co-own a home with a $1.8 million mortgage that was taken out in 2015. Since you’re both unmarried, you can each deduct interest on up to $1 million of that mortgage. Together, you’re eligible to deduct interest on the entire $1.8 million mortgage, getting the most out of your deductions.

Now, if you were married, you’d be limited to deducting interest on just $1 million of that mortgage, leaving $800,000 of mortgage debt without any interest deduction. That’s a huge chunk of change not being deducted from your taxes simply because of your marital status.

But What’s the Catch?

While staying single may offer a sweet tax break when it comes to mortgage deductions, there are some limitations. For starters, this strategy works best for couples with high mortgage balances. If your mortgage debt is lower, the benefit may not be as impactful.

Also, staying single to maximize your mortgage deduction doesn’t necessarily mean you’ll always pay less in taxes overall. There are other tax benefits that come with being married, like filing jointly and getting access to other deductions and credits. So, you need to weigh the mortgage interest deduction against the potential savings from filing as a married couple.

Example:

Let’s say you and your partner have a mortgage of $600,000 on a home you bought together after December 2017. Whether you’re married or single, you’re both well within the new $750,000 mortgage deduction cap, so you wouldn’t see any additional savings by staying unmarried. In this case, getting married wouldn’t impact your mortgage deductions, and you might even save more by filing jointly.

Consider All the Factors

Ultimately, staying single for mortgage interest deductions is a strategy that works best for couples with higher mortgage balances or homes purchased before the 2017 tax law changes. But it’s not a one-size-fits-all solution. It’s important to run the numbers for your specific situation. Depending on your overall financial picture, there could be more benefits to getting married than staying single.

At the end of the day, tax savings are great, but they’re just one piece of the puzzle. You’ve got to balance that with your personal and financial goals, too.

5. Use the 0 Percent Tax Bracket for Gifting Stock: Maximize Your Savings

Gifting appreciated stock to loved ones can be a game-changer when it comes to saving on taxes. But here’s the thing: many people don’t realize just how powerful the 0 percent capital gains tax bracket can be for them. If you’ve been giving money to family members or helping out loved ones financially, using stock instead of cash can be a real tax-saving hack.

What’s the Deal with the 0 Percent Tax Bracket?

The IRS allows taxpayers with lower incomes to sell assets like stocks and pay zero taxes on any capital gains, as long as they stay below certain income thresholds. For 2024, the taxable income limits are:

• $44,625 for single filers
• $89,250 for married couples filing jointly

So, if your parent, sibling, or even a close friend is in that bracket, you could give them appreciated stock instead of handing over cash. That way, they sell the stock, keep the full value, and avoid paying any capital gains tax. It’s a win-win situation for both of you.

Real-Life Example of How This Works

Let’s break this down with a simple example.

Imagine you own stock that’s worth $20,000 right now, but you bought it for only $2,000 years ago. If you sell that stock, you’ll be hit with capital gains tax on the $18,000 gain. Depending on your tax bracket, that could mean forking over 23.8% of your profits to the IRS. That’s a tax bill of $4,284. Not fun, right?

Now, instead of selling the stock yourself, let’s say you gift those shares to your Aunt Millie, who’s retired and comfortably sitting in the 0 percent capital gains tax bracket. She sells the stock for $20,000, 

but guess what? 

She pays zero taxes on the capital gains. She pockets the full $20,000, and you get to avoid paying that hefty tax bill.

Not only is Aunt Millie taken care of, but you’ve also used a smart tax strategy to maximize your savings. Sounds great, doesn’t it?

Why Gifting Stock Can Be a Better Option than Cash

Now, you might be wondering, “Why can’t I just give Aunt Millie the $20,000 in cash?” Sure, that’s one way to do it, but here’s the catch—if you sell the stock to get that cash, you’re going to face the capital gains tax on that sale. You’re giving her the money, but losing a big chunk to taxes.

By gifting the stock directly, your loved one avoids the tax altogether if they fall within that 0 percent bracket, and you keep the IRS out of your pocket. It’s a simple shift in strategy that can make a big difference.

Limitations to Keep in Mind

While this sounds like a perfect plan, there are some limitations you need to be aware of.

1. Income Thresholds Matter: The 0 percent capital gains rate only applies if your loved one’s income stays below the IRS limits. If they’re earning more than $44,625 (single) or $89,250 (married), they’ll end up paying taxes at the higher rates, which could defeat the purpose.
2. Gift Tax Considerations: When you give stock worth more than $17,000 to one person in 2024, you’ll need to file a gift tax return. The good news is, most people won’t actually pay gift tax thanks to the $12.92 million lifetime exemption. However, it’s still something you need to report.
3. Estate Tax Implications: If your estate is worth a significant amount, gifting stock can chip away at your lifetime estate tax exemption. For instance, gifting $20,000 of stock means $3,000 of it counts toward your exemption if you’re single. While this won’t affect most people, it’s worth considering if you have a high net worth.

Weighing the Pros and Cons

While gifting appreciated stock is an excellent way to reduce your capital gains taxes and help out your loved ones, it’s not for everyone. The biggest benefit is that both you and the recipient can avoid paying taxes if they’re in the 0 percent bracket. But if their income exceeds the threshold, this strategy might not be as effective.

Make sure to take a close look at the recipient’s financial situation before making the gift. And if you’re unsure, a quick chat with a tax professional can help you figure out if this move is right for you.

Last-Minute Strategy on Vehicle Purchases to Save on Taxes 

1. Buy a New or Used SUV or Van to Maximize Write-Offs

One of the most strategic moves to save on taxes for 2024-2025 is purchasing a new or used SUV, crossover vehicle, or van before the end of the tax year. The key here is finding vehicles that meet the IRS criteria—specifically those with a gross vehicle weight rating (GVWR) of 6,001 pounds or more. Here’s how this strategy can work in your favor and some nuances to consider.

Benefits of Purchasing a Heavier Vehicle

First off, heavy vehicles like SUVs and vans with a GVWR over 6,001 pounds offer significant tax deductions through the following:

• 60% bonus depreciation: This allows you to deduct 60% of the vehicle’s cost in the first year of purchase.
• Section 179 expensing: For 2024, you can expense up to $30,500 of the vehicle’s cost. This applies to both new and used vehicles.
• No luxury car depreciation limits: Vehicles of this size fall outside the limits typically imposed on sedans, meaning you can take full advantage of depreciation rules without worrying about caps.
• 5-year MACRS depreciation schedule: This lets you continue to deduct a portion of the vehicle’s cost over five years, allowing for further tax savings beyond the first year.

Real-Life Example: How You Benefit

Let’s walk through an example to show how these deductions come into play.

Suppose you buy a $90,000 SUV (with a GVWR of 6,080 pounds), and you use it 90% for business purposes. Here’s how your 2024 tax deductions would look:

• $30,500 in Section 179 expensing: You can take this right off the top, meaning $30,500 is immediately deducted.
• $32,400 in bonus depreciation: Since 60% of the remaining business cost ($59,500) is deductible, you get another $32,400.
• $1,620 in MACRS depreciation: The remaining 40% of the vehicle’s cost is depreciated over five years, giving you an additional $1,620 in first-year depreciation.

In total, you’d be writing off $64,520 in 2024. That’s nearly 72% of the vehicle’s cost in year one—an amazing return on a vehicle you were going to use anyway.

Why Is This So Beneficial?

The power of this deduction is that it allows business owners to immediately reduce their taxable income in the same year they purchase the vehicle. So, instead of slowly writing off the cost over many years, you get a massive upfront deduction, which helps if you’ve had a profitable year and need to lower your tax burden quickly.

Plus, because the deduction applies to both new and used vehicles, you don’t have to worry about shelling out for something brand new. You could easily buy a pre-owned vehicle that fits the requirements and still save a significant amount.

Limitations to Be Aware Of

As with any tax strategy, there are a few limitations and conditions you need to keep in mind:

1. Business-Use Requirement: The deductions only apply to the percentage of time the vehicle is used for business purposes. In the above example, the SUV was used 90% for business. If your business use drops below 50%, you won’t qualify for these hefty deductions. So, be honest about your usage.
2. Luxury Car Rules for Smaller Vehicles: If your vehicle doesn’t meet the 6,001-pound weight requirement, it will be subject to the luxury car depreciation limits. In 2024, this means the maximum deduction for lighter vehicles is capped at around $20,000 in the first year. Not bad, but significantly less than what you’d get for heavier SUVs and vans.
3. Reduced Bonus Depreciation: Keep in mind that bonus depreciation is on a downward trend. For 2024, it’s at 60%, down from 80% in 2023, and will likely continue to decrease in future years unless Congress acts. That’s why it’s important to make your purchase sooner rather than later to capture these benefits before they phase out.
4. Placed in Service by Year-End: To qualify for these deductions, your vehicle must be placed in service before December 31. This means you have to buy it, take delivery, and actually drive it for business purposes by that date—no exceptions.

A Small but Important Caveat: Maintenance and Fuel Costs

While purchasing a heavier SUV or van can offer tax benefits, there are a couple of practical limitations to consider. Heavier vehicles tend to have higher maintenance and fuel costs, which may offset some of your long-term savings. Be sure to factor this into your overall business expenses when making the decision.

2. Buy a New or Used Pickup Truck for Full Section 179 Expensing

If you’re eyeing a pickup truck for your business, you’re in for a tax treat. With Section 179 expensing, you could potentially write off the entire cost of the truck in the year you buy it, making it one of the best ways to lower your taxable income before the year ends.

So, how does this work, and why is it so beneficial?

The Benefits of Section 179 Expensing for Pickup Trucks

The beauty of Section 179 is that it allows you to deduct the cost of qualifying business equipment, including pickup trucks, all at once—up to a whopping $1,160,000 in 2024. This can be a game-changer if you need a hefty deduction before year-end. Unlike other tax breaks that spread out over several years, Section 179 gives you an upfront write-off, which is a huge benefit for businesses looking to reduce taxes quickly.

For pickup trucks, the IRS has laid out some specific requirements for you to take full advantage of this:

• The truck must have a gross vehicle weight rating (GVWR) of more than 6,000 pounds.
• The cargo bed needs to be at least six feet long and not easily accessible from the cabin (so no sneaky extra seats cutting into the bed length).

These rules might seem technical, but if your truck qualifies, you can combine Section 179 expensing with 80% bonus depreciation. This means you could potentially deduct almost the entire cost of the truck in one year!

Example of Full Section 179 Expensing in Action

Let’s break it down with an example to show how this really works. Say you purchase a brand-new pickup truck for $55,000 in 2024, and you use it 91% for business purposes. Here’s how your write-off would look:

• The business-use portion is $50,050 (that’s 91% of $55,000).
• Under Section 179, you can write off the entire $50,050 in the first year! No waiting around for years of gradual depreciation. It’s all upfront, meaning a massive reduction in your taxable income for 2024.

This is especially helpful for businesses that want to preserve cash flow. You get to claim the deduction without making a huge dent in your pocket. And since this applies to both new and used trucks, you have plenty of options to consider.

But What if the Truck Doesn’t Meet the Requirements?

Of course, not all trucks will meet the IRS’s criteria for full Section 179 expensing. If your truck doesn’t have the full six-foot bed, or if it’s too light to meet the GVWR threshold, you won’t be eligible for the full deduction.

So, what happens then? 

Well, in this case, the IRS will treat your truck like an SUV, which isn’t the worst thing in the world. You’ll still qualify for up to $28,900 in Section 179 expensing and 80% bonus depreciation. While that’s lower than the full expensing available for pickup trucks, it’s still a solid deduction that will help reduce your tax bill.

Limitations to Consider

While Section 179 expensing sounds like a dream come true, there are some things to keep in mind to avoid surprises:

1. Business Use: The amount you can deduct is directly tied to how much you use the truck for business. So if you’re not using the truck at least 50% for business, your ability to claim Section 179 will be limited.
2. Annual Cap: Section 179 has a yearly limit. In 2024, the total cap for all business equipment (including vehicles) is $1,160,000. This might seem high, but if you’re planning to buy multiple vehicles or other expensive equipment, you could hit the cap quickly.
3. Income Limitation: Section 179 deductions can’t exceed your total taxable income. So, if your business isn’t making much profit in a given year, your deduction might be capped at your earnings. In that case, excess deductions roll over to the next year, which is helpful, but it’s not the immediate relief many business owners are after.

3. Go Green with an Electric Vehicle

Now, let’s talk about a win-win situation—going green with an electric vehicle (EV) for your business. Not only does this help the environment, but it can also give your tax bill a nice jolt of savings. With governments worldwide pushing for greener choices, now’s a great time to switch to an electric vehicle. Here’s why this could be one of your best business decisions, both financially and environmentally.

The Big Tax Credit

When you purchase an EV or a plug-in hybrid, you could qualify for a federal tax credit of up to $7,500. This credit directly reduces the taxes you owe—basically putting more money back in your pocket. And unlike other deductions that reduce taxable income, this credit is a straight-up reduction in the tax bill, making it super valuable.

Example: Let’s say you buy an electric vehicle for $50,000. You immediately qualify for the $7,500 credit. This brings your taxable cost down to $42,500. You can then apply the same rules for depreciation that apply to any business vehicle, such as bonus depreciation and Section 179 expensing, on that $42,500.

Lower Operating Costs

On top of the tax credit, one of the biggest benefits of going electric is the savings in operating costs. EVs typically have fewer moving parts than traditional gas-powered cars, which means fewer repairs and less maintenance. Plus, you’ll save on fuel costs—charging an EV costs much less than filling up a gas tank.

Over time, these savings can add up, making the total cost of owning an EV significantly lower. For business owners who drive frequently for work, this can be a major selling point.

Environmental Benefits

There’s also the feel-good aspect of reducing your business’s carbon footprint. With EVs, you’re not burning gasoline, which means fewer harmful emissions. If you’re running a business that wants to promote sustainability, adding EVs to your fleet can be a great PR move. 

Clients and partners love working with companies that care about the environment, and showing that you’re committed to green practices could enhance your brand image.

Limitations to Consider

One of the biggest issues business owners face is range anxiety—the worry about how far you can go on a single charge. While charging infrastructure is improving, it’s still not as widespread as gas stations. This could be a problem if your business requires a lot of long-distance driving, especially in rural areas where charging stations might be scarce.

Another thing to think about is charging time. Unlike a quick stop at the gas station, charging an EV can take a while—anywhere from 30 minutes to several hours, depending on the charger. If your business requires you to be on the go constantly, waiting around to charge your vehicle might cut into productivity.

Finally, while you get that sweet federal tax credit, the upfront cost of electric vehicles tends to be higher than gas-powered ones. Yes, you’ll save on gas and maintenance, but that initial price tag can feel a little steep, especially for small businesses.

Balancing the Pros and Cons

Here’s where you’ll need to weigh the benefits and drawbacks. If your business mostly operates in urban areas where charging stations are common, an EV could be an excellent long-term investment. Plus, with the federal tax credit and lower operating costs, you’ll recoup some of that upfront cost sooner than you think.

But, if your business requires a lot of long-distance travel or operates in areas without reliable charging infrastructure, you might want to consider how often you’ll be able to charge your vehicle and whether the downtime is worth it.

2024 Year-End Tax Deductions for Your Existing Vehicles

As 2024 comes to a close, the clock is ticking for you to take advantage of last-minute tax deductions on your vehicles. Whether for personal or business use, these strategies can save you thousands in taxes, but only if you act now. Here’s a breakdown of what you can do to cut your tax bill before the year ends:

1. Sell Your Child’s or Spouse’s Car for a Tax Loss Deduction

This strategy might sound strange at first, selling your child’s or spouse’s car, but stick with me because it can lead to a big tax break.

When you hand over a business vehicle to a family member for personal use, you’re letting go of the potential tax benefits tied to that car. If you used that vehicle for business, there’s likely a tax-deductible loss embedded in it. And the longer it stays in personal use, the more of that tax benefit you’re losing. So, by selling that car before the end of the year, you could lock in a decent deduction.

How Does This Work?

Let’s say you’ve been in business for a while and have an old business vehicle you passed on to your spouse or teenager. If it was once used primarily for business, selling it now could allow you to claim the loss based on the percentage of business use over the years.

Here’s the catch—the longer the vehicle stays in personal use, the smaller your business percentage becomes. That’s why it’s crucial to act before December 31. Selling the vehicle to a third party now ensures you can deduct that loss on your 2024 tax return.

Why is This Beneficial?

Imagine this scenario: You bought a car for $30,000 and used it for business 80% of the time. Over the years, the car depreciated, and now it’s worth $10,000. You hand it over to your teenager to use for school runs, and the business use drops to 30%. If you sell it now, you can deduct the difference between the depreciated value and the current business-use percentage.

Tax Loss in Action:

• Original Value: $30,000
• Current Value: $10,000
• Business Use (Current): 30%

You could end up with a tax loss of several thousand dollars. It’s a sneaky but effective way to offset other taxable income.

For Example – 

Let’s say you originally used the car 70% for business, but it’s been a family vehicle for a couple of years, so that percentage has dropped to 40%. If you sell it now, you’re still eligible to deduct the loss tied to that 40% business use. So, if your car is now worth $10,000, but you paid $30,000 for it, you could claim a tax-deductible loss based on that 40%—which could still be a few thousand dollars in savings.

The deduction you take directly impacts your taxable income, lowering your overall tax liability. If you’re in a higher tax bracket, the savings could be even more significant.

But before you jump in and sell your spouse’s car, there are some limitations to keep in mind. While this strategy offers some solid tax benefits, it’s not without its downsides.

What Are the Limitations?

The main limitation is the declining business-use percentage. The longer you let your family member drive the car, the less of the original business-use percentage you can deduct. If that percentage gets too low, the tax savings might not be worth it.

For example, if you’ve been letting your spouse or child use the car for a few years, your business use might drop to 10% or less. At that point, the tax loss might be too small to justify the effort of selling the car. You also need to find a legitimate buyer to make the sale happen, which can sometimes take time.

Additionally, depending on how the vehicle was originally depreciated, there may be limitations on how much of the loss you can claim. The IRS has specific rules around recapturing depreciation, especially if the car was used for mixed purposes.

Is It Worth It?

In short, selling your spouse’s or child’s car can be a great way to lock in some year-end tax savings, but only if you act fast. The longer that car stays in personal use, the less beneficial this strategy becomes. Make sure to calculate your potential tax loss and consider any limitations before jumping in. If the numbers work out, this can be a surprisingly easy way to lower your taxable income for 2024.

2. Cash In On Vehicle Trade-Ins Before 2018

If you traded in a vehicle before 2018, you might be sitting on an overlooked tax deduction. Here’s why: Before 2018, the IRS allowed you to swap out old business vehicles for new ones under Section 1031, a tax-deferred exchange rule. This rule lets you defer any gain or loss on the old vehicle and roll it into the new one, without realizing any immediate tax consequences.

While the IRS changed the rules after 2017, you might still have a golden opportunity for a huge tax deduction if you acted before that change. Let’s break it down:

Why is This Still Relevant?

If you traded in a business vehicle for another before 2018, you probably didn’t think much about the tax implications. You might have even thought that using the IRS mileage rates meant there was nothing more to worry about. But here’s the thing: when you trade a vehicle under Section 1031, the tax basis of your old car gets carried over to your new car.

What does that mean? 

It means that when you sell your current vehicle, you’re not just selling the car you have now—you’re also cashing in on all the deferred losses from the previous trades.

Let’s use Sam’s example from before:

• Sam has been in business for 15 years and traded in three vehicles during that time.
• Each time he traded in a car for a new one, the tax basis of the old car got rolled over to the new vehicle.
• Fast forward to today, and Sam is driving his fourth business car, unaware that he’s built up $27,000 worth of tax loss deductions over the years.

If Sam sells his current vehicle in 2024, he can finally realize that loss and slash his taxable income by $27,000! That’s money in the bank, just from selling a car.

How Can You Benefit?

The key to unlocking this hidden benefit is knowing whether you traded in a vehicle before 2018 under the old Section 1031 rules. If you did, the tax basis from your old vehicle was added to your current one. Selling it now means you could be claiming losses from multiple vehicles—possibly spanning decades.

Even if you deducted your cars using the standard IRS mileage rates, you may still have a depreciation component embedded in those trades. This means there could be even more loss than you think waiting to be deducted.

Here comes the best part …… 

You don’t need to do anything fancy. Just sell the vehicle before December 31, 2024, and watch those tax savings roll in.

But…What Are the Limitations?

While this sounds like a win-win, there are some limitations to keep in mind.

1. Business Use Percentage Matters: The deduction you can claim depends on how much you used the vehicle for business versus personal purposes. If you’ve switched the car to mostly personal use over time, your business percentage decreases, which shrinks your deduction. For example, if you only used the vehicle 50% for business in 2024, you can only deduct 50% of the loss.
2. Vehicle Depreciation: Over the years, vehicles naturally depreciate. If your car’s value has plummeted, the tax deduction won’t be as large as you’d hope. You’ll only be able to deduct the difference between your vehicle’s adjusted basis and its selling price. If you’ve used up most of your depreciation already, your tax benefit might not be as big.
3. Need to Sell: The only way to claim this deduction is to actually sell the vehicle. You can’t just hold onto it and expect to get the tax break. Selling by December 31 is crucial if you want this benefit for the 2024 tax year.

3. Put Your Personal Vehicle Into Business Use

One of the best ways to squeeze out some extra tax savings before the year closes is to convert a personal vehicle into a business one. Got a personal SUV, crossover, or even a pickup truck that’s over 6,000 pounds? You might be sitting on a tax goldmine. 

The IRS has made this pretty appealing by allowing 80% bonus depreciation for 2024, which means you can deduct a huge chunk of the vehicle’s value just by using it for your business.

How Does It Work?

Let’s say you or your spouse owns an SUV that’s mostly used for personal errands right now. By placing that vehicle into business service before December 31, you can turn it into a tax-saving machine. As long as it meets the weight requirement (over 6,000 pounds), the IRS allows you to write off up to 80% of the vehicle’s cost in the first year under bonus depreciation.

Imagine you bought a $50,000 SUV a couple of years ago. If you decide to start using it for your business now, you could be looking at a $40,000 deduction for 2024—just for changing how you use the vehicle. 

You still get to claim other ongoing expenses like gas, maintenance, and insurance for the business use as regular deductions. That’s a win-win for your tax return.

Why This Strategy Is Beneficial

a. Massive First-Year Deductions
By converting your personal vehicle to business use, the IRS lets you deduct a huge portion of its cost in one go. If you qualify for the 80% bonus depreciation, that’s an enormous deduction that you can claim right away for 2024. This can be a game-changer, especially if you’re a small business owner or freelancer looking to reduce your taxable income.

b. Immediate Tax Savings
You don’t have to go out and buy a new vehicle to claim this deduction—you just need to start using your personal vehicle for business purposes. This is a great way to take advantage of tax benefits without shelling out any extra cash upfront. Plus, if you act by December 31, this deduction will apply to your current year’s tax return, putting more money back in your pocket when you file.

c. Ongoing Benefits
Once your vehicle is officially “in service” for your business, the savings don’t stop at depreciation. You can also start writing off other related expenses like fuel, maintenance, and even parking fees—anything tied to the business use of your car.

Let’s break it down with an example:

Sarah is a business women who drives a personal SUV that’s worth $60,000. In December 2024, she decides to start using the SUV for business purposes. Since it weighs over 6,000 pounds, Sarah qualifies for 80% bonus depreciation. That means she can deduct 80% of the vehicle’s value—$48,000—on her 2024 taxes. Along with that, she’ll get to deduct fuel, repairs, and insurance costs related to business use. These extra deductions can really add up, significantly reducing her taxable income.

What Are The Limitations?

While this strategy sounds great, there are a few things to keep in mind before you start using your personal vehicle for business:

d. Business Use Percentage Matters
The IRS doesn’t let you write off the whole vehicle cost if you’re only using it part-time for business. You’ll have to track how much you actually use it for business and then prorate the deductions. So if you’re using your SUV for 50% business and 50% personal errands, you’ll only be able to deduct 50% of the 80% bonus depreciation.

In Sarah’s case, if she used the SUV for only 60% business, she could still deduct $28,800 in 2024. That’s still a solid deduction, but not as big as it could have been if the business use was higher.

e. Recapture Tax If You Sell It
Let’s say you enjoy those big deductions now, but later decide to sell the vehicle. You’ll have to deal with “recapture” taxes. This means the IRS will want some of those tax benefits back if the vehicle sells for more than its depreciated value. So, while you get huge deductions upfront, you might face a tax hit later if you sell the car at a decent price.

f. Personal Use Can Complicate Things
If you’re switching back and forth between personal and business use, keeping accurate records is crucial. The IRS requires documentation that clearly shows how much of the vehicle use was for business. If your record-keeping is sloppy, you might have trouble defending your deductions in case of an audit.

4. Reevaluate Your Current Business Vehicle for a Big Deduction

You might be sitting on a tax deduction without even realizing it, especially when it comes to your current business vehicle. If you’ve been using the same car or truck for business for a while, there’s a good chance that it has depreciated significantly. And if you sell it before the year ends, you could be eligible for a nice tax-deductible loss. This might seem like an accounting technicality, but it can actually put more money back in your pocket when you file your 2024 taxes.

Here’s why it’s worth a second look:

The Benefits of Selling Your Current Business Vehicle

Depreciation, in simple terms, means the value of your vehicle has decreased over time. Every year you use it, especially for business, its value drops. But here’s the kicker: when you sell that vehicle, the difference between its sale price and the remaining book value (the value after depreciation) could turn into a tax deduction.

Let’s break it down:

Example: Imagine Jim bought a $60,000 vehicle back in 2020, using it 85% for business. Over four years, he’s depreciated $10,000 of that vehicle. Now, if he sells it for $25,000 in 2024, the math works out like this:

• Purchase Price: $60,000
• Depreciation: $10,000
• Sale Price: $25,000
• Business Use Deduction: 85%

After running the numbers, Jim ends up with a $19,750 tax-deductible loss. That’s a significant saving on his taxes! Instead of letting the car sit there depreciating even more, he cashes in on the opportunity before the year ends.

But the benefits don’t just stop at tax savings. Selling your business vehicle now can give you the flexibility to upgrade to something more suitable for your business, especially with tax perks like bonus depreciation still available.

Why Timing Matters?

The key here is acting before December 31. Selling your business vehicle this year locks in the deduction for your 2024 taxes. Waiting longer only means more depreciation, which might reduce the vehicle’s value even more, giving you a smaller loss and less tax benefit.

Plus, remember, if you don’t sell it now, you’re not just losing potential tax deductions—you’re also missing the chance to reinvest that money into a new vehicle that could benefit your business in the long run.

The Limitations: When This Strategy Might Not Work

Now, it’s important to point out that this strategy isn’t foolproof for everyone. One big limitation is if your vehicle hasn’t depreciated enough or if the resale value is too close to the book value. In that case, the tax deduction might not be worth the hassle of selling the car.

For instance, if Jim had depreciated his $60,000 vehicle down to $55,000 but could sell it for $50,000, the $5,000 difference might not be enough of a loss to justify the effort. In this case, Jim might choose to hang onto the car for a bit longer or look for other ways to maximize his deductions.

Another scenario where this strategy might not make sense is if you’ve primarily used the vehicle for personal use. Remember, the tax-deductible loss only applies to the business-use portion of the vehicle. So, if you’ve been driving it mostly for personal errands, you won’t get as much of a deduction.

Is It Really Worth It?

In most cases, yes! If your vehicle has depreciated significantly and it’s been used primarily for business, selling it could be a smart move. The tax savings can be substantial, as shown in Jim’s example. But like all tax strategies, this one requires a bit of planning and understanding of your vehicle’s value and how much it’s been used for business purposes.

In short: don’t let that old business vehicle sit around losing more value. Check its depreciation, do the math, and see if selling it before year-end could lead to a bigger tax deduction. It’s an easy way to cut down on your 2024 tax bill and free up some cash for something new.

Also Read: How 1031 Exchanges Can Impact Baby Boomers’ Financial Planning

How Project 2025 Tax Plan Would Burden the Middle-Class While Benefiting the Wealthy

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