With the looming Fiscal Cliff of 2025 and uncertainty as to whether or not provisions of the TCJA will be extended, businesses should maximize year-end tax savings strategies. There are many ways a business can still minimize the tax bite before the end of 2024.

Retirement Plans

The SECURE 2.0 Act of 2022 expands provisions for retirement plans to benefit both employers and plan participants. Although some benefits were available in 2023, several of the provisions become effective in 2024 and beyond.

An employer that does not sponsor a retirement plan can offer a starter 401(k) plan (or safe harbor 403(b) plan). A starter 401(k) plan (or safe harbor 403(b) plan) would generally require that all employees be enrolled in the plan at 3% to 15% of compensation deferral rate by default. The limit on annual deferrals would be the same as the IRA contribution limit. This provision is effective for plan years beginning after December 31, 2023.

The SECURE Act 2.0 permits an employer to adopt a new retirement plan by the due date of the employer's tax return for the fiscal year in which the plan is effective. Current law, however, provides that plan amendments to an existing plan must generally be adopted by the last day of the plan year in which the amendment is effective. This precludes an employer from adding plan provisions that may be beneficial to participants. The SECURE Act 2.0 amends these provisions to allow discretionary amendments that increase participants' benefits to be adopted by the due date of the employer's tax return. This provision is effective for plan years beginning after December 31, 2023.

Depreciation and expensing

The TCJA provided very generous depreciation and expensing limitations. Businesses may want to take advantage of 100-percent first-year depreciation on machinery and equipment purchased during the year. Additionally, Code Sec. 179 expensing has an investment limitation of $3,050,000 for 2024, with a dollar limitation of $1,220,000.

Taxpayers may also claim an additional first-year depreciation allowance of 60% for property placed in service in 2024. It may be the best policy to take advantage of this benefit in the current year. The allowance generally decreases by 20% per year and expires Jan. 1, 2027.

Clean commercial vehicles

The Inflation Reduction Act of 2022 provides a new $7,500 credit for the purchase of clean commercial vehicles after 2022. The requirements for this credit are very similar to that available to individuals, so the same considerations made by individuals should be made by businesses thinking about purchasing environmentally friendly vehicles.

At the end of 2023, there wasn't much urgency in claiming these credits, but that may not necessarily be the case at the end of 2024. While the Trump campaign did not single out any specific credits, there was a general antipathy of many green energy initiatives. It is entirely possible that some or all of these green energy incentives could be on the chopping block to help pay for tax cuts elsewhere. If any action on this legislation in 2025 is retroactively applicable to the whole year, 2024 could be the last chance to claim the credits.

Other year-end strategies for businesses

A number of other traditional year-end strategies may apply. These include:

  • Timing the deduction of employee bonuses and executive compensation
  • Prepay rent and suppliers under the cash system; commit to contracts under the accrual method
  • Consider inventory write-offs
  • Avoid the impact of corporate AMT

Corporate Transparency Act

While not a tax saving strategy, the new compliance measures surrounding Beneficial Ownership Information (BOI) are in effect as of this year. Both Domestic and Foreign reporting companies are required to file their Initial BOI Report to FinCEN by January 1, 2025. There are many options for submitting your information including DIY, online services, legal counsel assistance, and CPA assistance. This deadline is quickly approaching so it is important to stay on top of this and include this in your year-end checklist if applicable.