By Michael Vaughn, CFP®
As the year comes to a close and the holiday season approaches, now is an important time for small business owners to assess their operations and financial situation. While many people are busy enjoying festivities and spending time with loved ones, it’s a wise idea for business owners to maintain focus on finishing the year on a positive note.
This end-of-year checklist for small business owners is crafted to help address every important detail during this vital period. It serves as a guide for shielding your business’s financial success, helping you reduce your tax liabilities and start 2025 on the right track.
1. Review IRS Elections (Especially if You Had a Net Operating Loss)
If you had a net operating loss (NOL) this year, double-check your IRS elections to ensure you made the correct ones. This is one of the biggest issues our CPAs see when they help small business owners file their taxes.
All these decisions play a role in how much money your business may owe in taxes. Talk with a CPA or financial professional about which elections may be right for you.
Additionally, how you structure your small business can make all the difference in the world when it comes to taxes. A tax professional can help you decide which entity type is the best for your business and help you apply before the deadline hits.
For example, let’s say you found out you could save more in taxes by structuring your business as an S corporation instead of an LLC. If you’re a new business, you have two months and 15 days from the day you file your articles of formation to file your S corp elections. So, if you filed your articles of formation on March 1, you have until May 16 to file your S corp election for it to take effect that same tax year.
2. Review Your Deductions
One essential aspect of your end-of-the-year checklist as a small business owner is reviewing your deductions. This involves assessing your business expenses and identifying potential deductions that can help reduce your tax liability. Keep in mind that tax laws and regulations can change, so staying up-to-date with the latest rules is crucial.
There are several deductions available for basic business expenses and these can help reduce your taxable income significantly. Some common examples of business expenses include:
- Advertising
- Legal and professional fees
- Office expenses, including costs related to the business use of your home
- Business use of your vehicle
- Continuing professional education
- Memberships to professional organizations
Tax-deductible business expenses need to be ordinary and necessary to operate your business. Consult your tax professional for more details on qualified business expenses.
3. Review Depreciation
New depreciation rules have come into effect in recent years due to the Tax Cuts and Jobs Act (TCJA). These changes allow you to write off most depreciable assets in the year they’re placed into service, according to the IRS.
Common items you can write off for depreciation include computers, equipment, machinery, cell phones, buildings, office furniture, and vehicles, as well as intangible items like copyrights.
Make sure you keep a list of everything that counts as a depreciable expense. Doing so will help you lower your business’s taxable income.
4. Check Eligibility for Company Retirement Plans
There are several different tax-advantaged retirement plans available to small business owners, including the solo 401(k), the SEP IRAhttps://pinnaclefamilyadvisors.com/individual-401k-vs-sep-ira/, and the SIMPLE IRA. A solo 401(k) is designed for businesses with only one employee, the business owner, whereas SEPs and SIMPLEs can be used for businesses with more employees, though SIMPLE IRAs are capped at 100 employees.
According to the IRS, an employee can participate in a SEP IRA if they:
- Are at least 21
- Have worked for the employer in at least 3 of the last 5 years
- Received at least $750 in 2024
Business owners can choose to be less restrictive than this and allow other employees to participate in a SEP, but you can’t be more restrictive than these IRS rules allow.
Review your SEP IRA eligibility requirements to ensure employees can participate in the program if you want them to.
Choosing to add an employer-sponsored retirement plan to your company can be a great way to take advantage of tax credits, including those for setting up a new plan and auto-enrolling employees. You may also be eligible for additional tax deductions by making qualified employer contributions on behalf of your employees. It’s important to review your options with a qualified financial professional before making a decision on a retirement plan as each plan type comes with its own unique benefits and drawbacks.
5. Review New Due Dates & Filing Methods for 1099s
A new rule that began in 2020 states any freelancers or contract workers who earned more than $600 from your company will receive Form 1099-NEC instead of 1099-MISC. NEC stands for “non-employment compensation”—and it’s only used for reporting independent contractor income.
1099-NEC forms are due on January 31. If this day falls on a weekend, they’re due the following business day.
How We Support Your Success
At Pinnacle Family Advisors, we’re dedicated to helping small business owners build, safeguard, and enjoy their wealth well into the future. If you’d like support in wrapping up any financial details before the new year, we’re here to help. Working closely with our network of CPAs, we guide our clients through a smooth financial experience, covering everything from tax planning to cash flow management.
To get started, schedule your complimentary introductory meeting by emailing me at [email protected], calling (417) 351-2942, or using my online calendar.
About Michael
Michael Vaughn is a CERTIFIED FINANCIAL PLANNER® professional and Vice President at Pinnacle Family Advisors (PFA) with 24 years of industry experience. Before joining the PFA family, he served clients with investment management and retirement planning at The Mutual Fund Store for 14 years. Michael graduated from Missouri State University with a bachelor’s degree in business administration and management and earned his CFP® certification in 2004. He also served 20 years in the Missouri National Guard, retiring in 2007 as a Major. He currently volunteers on the board of directors for Good Dads and Fellowship of Christian Athletes. Michael is married to Lori and they have two daughters. To learn more about Michael, connect with him on LinkedIn.