Did you know a lot of business owners don’t have end-of-year tax strategies and end up paying over 40% of their income in taxes?
Federal income taxes, state taxes, payroll taxes, property taxes, sales taxes… it all adds up fast.
For most entrepreneurs, your business isn’t just how you make a living—it’s your biggest asset, a key part of your net worth, and the foundation of your retirement plan. But taxes are probably one of your largest expenses, eating into the money you could be saving or investing for your future.
This heavy tax burden doesn’t just hurt your cash flow right now—it slows down your ability to build wealth and might even push your retirement further down the road.
So, how do successful business owners handle this?
The answer: proactive tax strategies.
These aren’t shady tricks or gimmicks—they’re perfectly legal approaches that let you keep more of the money you’ve worked hard to earn. The key is knowing which strategies fit your situation and planning ahead.
Let’s dive into 7 proven end-of-year tax strategies that can help you reduce your tax bill and put more money back in your pocket for the future.
1. Set Up a SEP IRA to Jumpstart Retirement Savings
We all know that planning for retirement is crucial, and a SEP IRA offers an easy and tax-advantaged way to save significantly while lowering your tax bill.
A Simplified Employee Pension (SEP) IRA is an excellent retirement plan option for self-employed individuals and small business owners.
Here’s how it works:
- High Contribution Limits: You can effectively contribute up to 20% of your net self-employment income, capped at $69,000 (2024).
- Flexibility: Contributions can be made up until your tax filing deadline for the previous year.
- Employee Exclusion: Certain categories of employees (e.g., those under 21 or who haven’t worked three out of the last five years) can be excluded, allowing you to focus contributions on yourself if you qualify.
Example in Action
If you earn $100,000 in self-employment income, you could contribute $20,000 to your SEP IRA, earning a $20,000 tax deduction. At a 30% tax rate, that saves you $6,000 in taxes—while growing your retirement fund.
2. Consider Using the Augusta Rule for Tax-Free Income
Did you know you can rent your home to your business and pocket the income tax-free?
The Augusta Rule allows you to rent your primary residence to your business for up to 14 days per year without reporting the rental income. Here’s how:
- Fair Market Rent: Determine a fair market rental rate for your home.
- Documentation: Create rental agreements, meeting agendas, and invoices to legitimize the arrangement.
- Business Use: Use your home exclusively for business activities, such as board meetings or team trainings, during rental days. It must be a legitimate business use to qualify.
Example in Action:
If your home rents for $500 per day and you rent it to your business for 14 days, you can move $7,000 tax-free from your business to your pocket. At a 30% tax rate, this strategy saves you $2,100.
3. Qualify for the Qualified Business Income (QBI) Deduction
The QBI deduction is like a bonus for business owners, letting you keep more of your income if you meet certain criteria.
The QBI deduction allows eligible business owners to deduct up to 20% of their qualified business income. While high-income earners may face phase-out limits, combining this with other strategies can unlock significant savings.
In the event your taxable income exceeds the phase out thresholds I can help provide to you a unique strategy to optimize your QBI deduction by leveraging the limitations to your advantage. If, on the other hand, we can get your income below the phase out range by leveraging some of the items in the example below, even better!
Example in Action:
By using strategies like SEP IRA contributions or accelerated depreciation, you could reduce your taxable income below the QBI threshold. For a $150,000 business income, this unlocks a $30,000 deduction, saving you $9,000 at a 30% tax rate.
4. Make Business Travel Work for You
Business trips don’t have to be all work and no play. With the right planning, you can deduct travel expenses while enjoying some personal time.
You can turn family vacations into deductible business trips by ensuring a clear business purpose. Here’s how:
- Prove the Purpose: Attend conferences, meet clients, or conduct market research.
- Track Expenses: Keep receipts and document travel itineraries.
- Use the One-Week Rule for international: For trips under a week, the entire transportation cost may be deductible, even if some days are personal.
- Consider the “sandwich” approach for domestic travel: Having a conference on a Friday and a Monday could allow you to stay the weekend and have those expenses considered business expenses.
Example in Action:
A five-day trip to attend a business conference could allow you to deduct airfare, accommodations, and meals—turning some personal plans into tax savings.
5. Time Major Investments Strategically
Big investments like opening a new location can also mean big tax savings—if you time them right.
Planning major expenses like opening a new location can significantly impact your taxes:
- Startup Cost Deductions: Deduct qualifying expenses over time.
- Depreciation: Start depreciating assets sooner by timing purchases strategically.
- Offset Gains: Use losses from new investments to offset profits elsewhere.
Example in Action:
By opening a second location toward year-end, you may be able to deduct build-out costs to reduce your taxable income—potentially saving tens of thousands in taxes.
6. Maximize Vehicle Expense Deductions
Your car can do more than get you from point A to B. It can help you save on taxes too, if you track your business use carefully. (Hint – We’re looking for greater than 50% business use here)
If you use your vehicle predominately for business purposes, you can deduct associated costs.
Your options include:
- Standard Mileage Rate: Deduct a set rate per business mile. OR
- Actual Expenses: Deduct fuel, maintenance, and insurance costs. %
- Accelerated Depreciation: There are a couple options that can be used here, Section 179 for qualifying vehicles and or a combination of bonus depreciation. Each has it’s place and specific requirements.
Example in Action:
By designating a home office, your commute could become deductible business mileage. Driving 12,000 miles at the 2023 mileage rate of 65.5 cents per mile earns you a $7,860 deduction—saving $2,358 at a 30% tax rate.
7. Hire Your Kids
Hiring your kids isn’t just a family bonding opportunity—it’s also a smart way to reduce your taxes while teaching them about work.
Hiring your children can provide tax benefits while teaching them valuable skills. Here’s how:
- Income Shifting: Pay wages to children in lower tax brackets.
- Business Deduction: Wages paid are deductible business expenses.
- Tax-Free Earnings: Kids can earn up to the standard deduction amount tax-free.
Example in Action:
By hiring three children at $15,000 each, your business deducts $45,000. If they’re in a 0% tax bracket, this saves you up to $13,500 in taxes at a 30% rate.
Keep in mind the children need to be doing actual work at a rate you’d paid a 3rd party. If structured correctly it’s possible to pay zero tax on those wages and even invest that money into a retirement account in your child’s name. A great strategy if implemented correctly and honestly.
Ready to Keep More of What You Earn?
Let’s face it—the only thing worse than paying taxes is overpaying.
If these strategies sound like something you’ve been missing out on, now is the time to take action.
A proactive tax plan tailored to your small business can save you tens of thousands of dollars every year—and bring you closer to financial freedom.
Here at Arnold & Co, I specialize in helping entrepreneurs and small business owners reduce taxes, increase profitability, and plan for a secure future.
If you’re in search of a better CPA, I’m here to help.
Schedule a free complimentary call, and we’ll review your current tax strategies and business structure to uncover opportunities to save.
Head over to the Contact Page to start.
Until next time!