It is the eleventh hour of opportunity to mitigate freelance business taxes for the 2024 tax year. Until midnight on December 31, 2024, you still have the opportunity to make strategic moves that can significantly reduce your freelance business tax liabilities for this year. So let’s not wait any longer. Here are some top year-end tax moves that can help you reduce your tax bill, but only if you act now!
- Maximize Your Retirement Contributions
Contributing to retirement accounts like SEP IRAs, Solo 401(k)s, or SIMPLE IRAs can reduce taxable income while building a nest egg for the future. The 2024 contribution limits for SEP IRAs and Solo 401(k)s are as follows:
- SEP IRA
The maximum contribution for a SEP IRA in 2024 is $69,000, or 25% of the employee’s compensation, whichever is less. Contributions are tax-deductible and grow tax-free, with taxes only paid on withdrawals.
- Solo 401(k)
The maximum contribution for a Solo 401(k) in 2024 is $69,000, or 25% of the employee’s gross adjusted income, whichever is less. There is also a catch-up contribution of $7,500 for those 50 or older.
Both SEP IRAs and Solo 401(k)s are available to self-employed individuals and small business owners. They have higher contribution limits than traditional 401(k)s and IRAs.
Make sure to maximize these contributions before the year-end deadline.
- Deduct Business Expenses
Ensure that all business-related expenses are properly documented and deducted. If you need equipment, training, or other services or supplies, now is the time to make the purchases so you can deduct them from your 2024 tax bill. Also, consider if there are expenditures that you can prepay to reduce your taxable income for the current tax year.
Keeping detailed records and receipts is essential for substantiating these deductions, so make sure any expenses are documented appropriately. This is true for every expense from client meals to mileage you clock for business purposes to the paper clips you buy for sorting your tax documents and receipts (we hope!).
- Defer Income
Deferring income to the next tax year can help reduce your total taxable income for this tax year. This can be achieved by delaying invoicing or holding off on receiving payments until January 2025. Deferring income can help lower your taxable income for 2024.
- Accelerate Expenses
Consider prepaying expenses that can be deducted in 2024. This includes things like rent, utilities, and subscriptions related to your business. By accelerating these expenses, you can reduce your taxable income for the current year, too.
- Review Estimated Tax Payments
Make sure that your estimated tax payments are up to date. Freelancers are required to make quarterly estimated tax payments to avoid penalties. Review your payments and make any necessary adjustments before the year-end so that you do not end up paying a penalty and if you have not paid yet this year, do it now!
- Utilize the Qualified Business Income Deduction
The Qualified Business Income (QBI) deduction allows freelancers to deduct up to 20% of their qualified business income. Ensure that you meet the eligibility criteria and maximize this deduction by keeping your taxable income below the threshold limits. In 2024, single filers must make $191,950 or less, and joint filers must make $383,900 or less. If you’re at or below these thresholds, you may be eligible for the QBI deduction.
- Consider Health Insurance Premiums
If you are self-employed, you may be able to deduct health insurance premiums paid for yourself, your spouse, and your dependents. Make sure to include these premiums in your deductions by gathering your receipts for premiums, copays and other qualified medical costs, especially if you have significant medical bills and plan to itemize your expenses.
- Evaluate Depreciation
Review your business assets and consider taking advantage of depreciation deductions. This can include equipment, computers, and other business property. Properly depreciating these assets can provide significant tax savings.
- Plan for State Taxes
Don’t forget to consider state tax obligations. Each state has its own tax rules and deadlines, so make sure to review your state tax requirements and plan accordingly. If possible, you may also be able to pre-pay these taxes to take your tax payment as a 2024 deduction.
- Seek Professional Advice
Tax laws can be complex and ever-changing. Consulting with a tax professional can provide personalized advice and help you navigate the intricacies of tax planning. Although it may be too late to consult with a tax professional over the holidays, it is key to connect with one in the new year, so you have a professional to help you identify additional opportunities for savings and ensure compliance with all relevant regulations.
By taking these steps before the end of the year as a freelance business owner, you can optimize your tax situation and set yourself up for financial success in 2025 and beyond. Stay proactive and make informed decisions to minimize your tax liabilities and maximize your financial health.
