7 Tips to Maximize Deductions and Credits in 2024

A tax credit pays off a portion of what you owe in taxes. A tax deduction reduces your taxable income. Maximizing the use of every available deduction and credit will typically decrease your tax liability and increase your tax refund. But which deductions and credits should be maximized for your small business?

Read this excellent guide, 7 Tips to Maximize Deductions and Credits in 2024, for detailed explanations of the credits and deductions you should consider embracing in preparation for the upcoming tax season. Our curated recommendations provide the insight you need to save your small business the most money.

Examples of Tax Deductions

A tax deduction is used to reduce your taxable income. You’ll then pay taxes on this lowered income amount. Here are some of the top examples of tax deductions that you should consider embracing:

• Health insurance: Freelancers with independent healthcare plans can deduct this cost from their annual tax returns.
• Property taxes: This deduction applies to individuals who own rental property because it would be considered a business expense.
• Travel expenses: Individuals who work as self-employed truck drivers can often deduct the costs of lodging and some meals while on the road.
• Home Office Deduction: If you’re a homeowner and have a regular and established workplace in your home, the associated costs can be deducted from your taxes.
• Building costs: Rent, utilities, and other maintenance costs for your office are typically eligible to be claimed as a tax deduction if the space is used solely and explicitly for business purposes.
• Vehicle use: If you drive a lot for work, you can deduct many of the associated expenses from your tax liability. You'll need to maintain detailed records to prove that the use of your vehicle was for your business.

Examples of Tax Credits

A tax credit will either reduce the amount of taxes you owe or increase your tax refund. Here are some of the top examples of tax credits that you should consider taking advantage of:

• Earned Income Tax Credit (EITC): This is one of the better-known tax credits that can apply to individuals with a low- or moderate-income level.
• Plug-in Electric Drive Vehicle Credit: Qualifying individuals who purchased an electric vehicle (EV) after August 16, 2022, may have eligibility for this credit.
• Childcare: This applies to families with children under the age of 17, with a credit of up to $2,000 in 2024. 
• Small Business Health Insurance Premiums: Small business owners with fewer than 25 employees who pay at least 50% of employee premium costs qualify for this credit. 
• Employer Credit for Paid Family and Medical Leave: This tax credit applies to employers who provide their employees with paid family and medical leave, which is equal to a percentage of wages they pay to qualifying employees while they're on family and medical leave.
• Work Opportunity Credit: If you're hiring and employing individuals from certain groups who have faced significant barriers to employment, you may be eligible for this work opportunity credit. 

7 Tips for Maximizing Your Deductions and Credits

Preparing early and incorporating your tax considerations into your regular bookkeeping practices and tax software is optimal, will make tax season easier, and will help maximize your deductions.Keep a running list of your itemized deductions throughout the tax year, and don’t wait to record a business expense at the end of the quarter or even the month's end. Don’t forget to track your receipts, either. You’ll save yourself time and effort by recording the expense immediately. These practices will help your own record-keeping, but they’ll also prove valuable if you receive an audit notice from the Internal Revenue Service (IRS)Tax deductions and credits often have fine print, so it takes some time to fully understand what you may be eligible to take. Read on as we discuss the top 7 tips for getting the most out of tax deductions and credits for your business.    

Make 401(k) and HSA Contributions

Regardless of age, taxpayers like you should understand the importance of retirement savings. This crucial practice offers two benefits – increasing tax savings and maximizing tax deductions. However, the IRS sets annual limits on how much of your retirement contributions you can deduct from your taxes. However, we recommend contributing the maximum amount to gain the most benefits.

Your income level and 401(k) status will determine these IRA deduction limits. If your retirement plan is through an employer, take the maximum amount out of your income that you can comfortably afford. An alternative to a 401(k) plan is a Roth IRA, which is funded with your after-tax income. This means that Roth IRA contributions cannot be deducted from your taxes. Some individuals may also contribute to a health savings account (HSA), which can be deducted from their taxes. According to the IRS, these contributions are tax-free if they’re used for qualified medical expenses. For 2024, Individuals can contribute up to $4,150, and families can contribute up to double that amount. 

Make Charitable Donations

A charitable donation will not only help you feel good about supporting a worthy cause, but it can also help you during tax season. Some charities may provide you with an end-of-year statement if you’re a regular donator, but keeping track of your charitable contributions yourself is also a good practice. Remember to itemize your deductions to lower your Adjusted Gross Income (AGI) through charitable donations. Claiming a standard deduction for charitable contributions won’t affect your tax return. In most cases, the limitation on deductions is 50% of your AGI, and the deduction must be made to a qualified organization. Typically, this deduction is worthwhile if you make significant contributions.

Postpone Your Income

Taxes revolve around the calendar year, and any expenses you deduct must occur within the applicable tax year. In other words, you can’t preemptively deduct an expense you plan to pay in 2025. You also aren’t obligated to pay taxes on the income you haven’t yet received. This creates a unique opportunity to defer your income from the current year to the next. Some may choose this option if their income fluctuates yearly, like a freelancer or contract worker. Since you only pay taxes when you physically receive your income, you can choose to delay your end-of-year payments until after December 31, 2024. This income would then be considered for your 2025 return. This strategy doesn’t mean you’re no longer responsible for paying taxes on that deferred income. It’s simply a way to help reduce your tax payments for the current year, which can have a significant impact if you’re right on the border of a tax bracket.

Pay for Your Business Expenses Early

Similar to your income, small business tax deductions are claimed during the same year that you pay for them. Just as you can postpone your received income to the following year, you can maximize your deductions by making early charges for business expenses. Small business owners should always be aware of tax-deductible business expenses, which can provide even more tax benefits if they overlap with higher income.Consider any last-minute business expenses you may need to make before the end of the year. These expenses will still count towards this year's tax return, even if you don’t take possession of the goods or services until the following year.

Consider Your Losing Investments

While it may not feel good to think about an investment that didn’t go as planned, you may be able to use that loss to your advantage and decrease your AGI. Selling a losing investment can be considered negative income, which reduces your taxable income. The limit for claiming capital losses is $3,000; anything beyond that can be carried over to the following year. These losses can also be counted against future capital gains.

Don’t Forget About Office Expenses

It’s easy to overlook miscellaneous office expenses you need to keep your business running. Make sure to keep track of office supplies like stationery and printer toner, and rent and utilities if you work from home. Interpreting specific details of these expenses can be a little complex, which is why it’s recommended to review with a professional before making these deductions on your tax return.

Consult a Tax Professional

You shouldn’t expect to know every state and federal tax deduction and credit available. Tax legislation differs at the federal and state levels and changes frequently. Contact a tax professional or service who can help you maximize deductions and credits. While this blog will help you with the basics, having a professional perspective and insight is valuable.

Conclusion

Tax returns require careful consideration, preparation, and the right expertise. That's why American small business owners and entrepreneurs trust the experts at 1-800Accountant, America's leading virtual accounting firm, to provide comprehensive tax services for their operations. Whether it's business tax preparation and filing, tax advisory, bookkeeping, or any of our professional accounting services, we have the affordable solutions you need to ensure your business benefits from every tax credit and deduction you're eligible for. Schedule a quick consultation–usually 30 minutes or less to learn more.

Small Business Tax Deduction FAQs

How do small businesses reduce taxes?

There are several ways small businesses can reduce their tax bill. The best way to do so is to maximize all qualifying tax credits and deductions. Small business owners can employ family members, change their business structure to a more favorable entity, and offer a retirement account for employees.

How much can small businesses make without paying taxes?

If your earnings from your small business or self-employment side gig net you $400 or more in a single year, you must file an income tax return.

What deductions can I claim without receipts?

It’s always best practice to keep as many receipts and invoices as possible for tax filing purposes. However, keeping track of so many records can be difficult, especially if you don’t have a dedicated bookkeeper or accountant.