Year-End Planning: A Guide for Businesses and Individuals

As 2024 comes to a close, it’s vital for both businesses and individuals to engage in year-end planning to optimize tax strategies and financial health.

Here are some key considerations as 2024 comes to a close:

Review Your Financial Statements

Analyze Year-to-Date Performance

Start by taking a close look at your financial statements, including your income statement, balance sheet, and cash flow statement. Analyzing your year-to-date income and expenses will provide insight into your financial health.

Identify Opportunities

During this review, look for discrepancies, unexpected expenses, or areas where you might have underperformed. This could uncover opportunities for deductions and adjustments before the year ends, and you should ask yourself questions like:

Are there expenses you can accelerate into this tax year?

Can you defer income to the next tax year to lower your taxable income for 2024?

Maximize Retirement Contributions

Take Advantage of Tax-Deferred Accounts

Maximizing contributions to retirement accounts such as 401(k)s, IRAs, or other retirement plans is a crucial step in perfecting your year-end planning.

Contribution Limits

For 2024, the contribution limits for 401(k) plans are $22,500 (or $30,000 for those aged 50 and older). For traditional and Roth IRAs, the limit is $7,000 (or $8,000 for those aged 50 and older).

Tax Benefits

Contributions to these accounts can significantly lower your taxable income, which could lead to substantial tax savings. Additionally, boosting your retirement savings now sets you up for a more secure financial future.

Evaluate Tax Deductions and Expenses

Business Expenses
If you own a business, ensure you're claiming all allowable expenses, including:

Home Office Deduction: Claim a portion of your home expenses if you use a specific area exclusively for business.

Utilities: Deduct a percentage of your utility bills based on the area used for your business.

Internet and Phone Costs: Deduct business-related internet and phone expenses, keeping personal use separate.

Office Supplies: Write off the cost of supplies like paper, pens, and printer ink needed for your business.

Business Equipment: Deduct expenses for equipment such as computers and furniture used for work.

Tax Credits vs. Deductions

Don’t forget to look for tax credits, which directly reduce your tax bill, unlike deductions that lower your taxable income. Common credits include the Earned Income Tax Credit and the Child Tax Credit.

The Earned Income Tax Credit (EITC) is a tax benefit that can either increase your tax refund or reduce your federal tax liability. It’s available to everyone, whether you’re single or married, with or without children. The primary requirement is that you must have earned income from a job.

The Child Tax Credit directly reduces the taxes you owe, providing greater savings than a standard tax deduction.

To qualify for the credit, you need a Social Security number for your dependent child and must file Schedule 8812 with Form 1040.

Eligible children must:

• Be under 17 at the end of the tax year
• Be your child, stepchild, foster child, or related descendant
• Have lived with you for over half the year
• Contribute no more than half of their own support
• Be claimed as your dependent
• Not have filed a joint return, or only filed to claim a tax refund
• Be a U.S. citizen, national, or resident alien

Plan for 2025

Develop a Comprehensive Budget

Account for anticipated changes in income or expenses, such as potential raises, changes in client contracts, or expected increases in costs.

Set Financial Goals

Consider setting specific financial goals for the next year, such as saving for a down payment on a home, paying off debt, or increasing your retirement contributions.

Reassess Your Financial Strategy

Evaluate your current financial strategy and consider whether adjustments are necessary based on changes in your personal or business circumstances.

For tailored advice on year-end planning, reach out to Baldwin CPAs. We’re here to help you maximize your tax savings and set you up for a successful new year!