End-of-Year Tax Tips: A Guide for Individuals and Businesses

As the year draws to a close, it’s important to focus on more than holidays and family get-togethers—you should set aside time for year-end tax planning as well. Not only will you be able to get a jump on tax season, but you can potentially minimize your tax liability and make the most of available tax benefits. Whether you’ll be filing taxes as an individual or small business, these end-of-year tax tips can help you be prepared.

Individual tips for tax success (and some pitfalls to avoid)

1. Contribute to your IRA

One of the best ways for you to prepare for the future is by making a contribution to an Individual Retirement Account (IRA). IRA contributions to a traditional IRA are typically tax deductible, and as of 2023, you can receive that deduction for contributions up to $6,500 for those under age 50, or $7,500 for those age 50 or older. Read our blog to learn more about IRAs.

Although contributions to a Roth IRA are not tax deductible, your withdrawals during retirement are tax free. In addition, if you’re self-employed or a small business owner, you should consider contributing to a Simplified Employee Pension (SEP) IRA or a Savings Incentive Match Plan for Employees (SIMPLE) IRA, both of which offer potential tax advantages.

2. Maximize your deductions

In 2023, the standard deduction is $13,850 for single filers and those married filing separately. It’s $27,700 for those married filing jointly and $20,800 for heads of household. For many taxpayers, it’s easiest and often best to take the standard deduction. However, you should take the time to review your potential tax deductions, such as mortgage interest, medical expenses and charitable contributions. If the sum of these deductions exceeds the standard deduction, you can claim those deductions to potentially increase your tax savings.

3. Manage your capital gains (and losses)

How have your investments fared this year? If you’ve experienced capital losses during the year, you may wish to consider selling those investments to offset capital gains in your portfolio. Capital losses can be used to reduce your taxable capital gains, which may lower your overall tax liability.

4. Make charitable contributions

Sometimes being generous can pay off twice—both for those you’re helping and for your taxable bottom line. Contributions to qualified charitable organizations can be tax deductible, so consider finalizing your donations before year’s end. Importantly, make sure you keep records of your donations and that the charities are IRS-recognized.

5. Organize your financial paperwork

The end of the year is the perfect time to organize your financial records and documents—including receipts, W-2s, 1099s and any other relevant paperwork. Beyond helping you claim deductions and tax credits more accurately, this effort will make completing your tax return much easier.  Your tax preparer will thank you!

As an individual taxpayer, what are some pitfalls you should avoid when it comes to paying taxes? Watch out for these three common challenges:

• Procrastination. Don’t put off making contributions or charitable donations until the last minute. When we turn the calendar to January 1, it’s too late for those transactions to apply to the previous tax year.
• Not paying attention. Are you missing out on available deductions? Have you gotten out of the habit of contributing to your retirement plans—or simply haven’t taken the time to review your investment portfolio recently? Now’s your chance to reconnect with your finances.
• Poor record-keeping. If your records don’t support what you “think” you contributed, donated and earned…it could come back to haunt you. Poor organization of financial records can result in errors on tax returns and difficulties in substantiating deductions and credits.

Small businesses tax tips (and a few situations to avoid)

For businesses who take the time to do the research—or who hire a tax professional to assist them—there are a number of tax savings strategies that can really make a difference. These are just a few:

1. Contribute to retirement plans

While contributing to a retirement plan is a great idea for an individual, businesses can also benefit from contributing to retirement plans for their employees. Not only will contributions to employer-sponsored retirement plans like 401(k)s provide you with tax benefits, having this sort of retirement plan in place can help you attract and retain talent.

2. Invest in capital expenditures

Section 179 of the U.S. Internal Revenue Code allows business owners to take an immediate expense deduction for purchases of depreciable business equipment—and it’s quite a robust deduction. In 2023, the Section 179 deduction limit is $1,160,000 (an increase of $80,000 from 2022). So if there are capital purchases you are considering for your business, consider making them before the end of the year.

3. Claim appropriate tax credits

Tax credits like the Employee Retention Credit (ERC), Clean Commercial Vehicle Credit, and credits for efforts you’ve made to conserve energy can really add up for small businesses. Talk with your tax preparer or financial professional now to see if you qualify. Even if you can’t use these credits for the 2023 tax year, you can plan ahead to take advantage of them in 2024.

4. Note the new 1099-K form limit

Starting in 2023, businesses and other taxpayers who receive more than $600 in income from third-party settlement organizations, including popular payment apps like PayPal, may receive Form 1099-K, which is a report of payment card and third-party network transactions. The $600 limit is lower than in previous years, so this may be the first time you’ve received such a form. These 1099-K forms will be sent via postal mail in early 2024.

5. Review your estimated tax payments

For business owners, it’s crucial to review the estimated tax payments that you’ve made throughout the year and ensure that you have paid enough to avoid penalties. If you’ve earned more this year than anticipated, be sure to make an additional tax payment before the end of the year to satisfy your tax obligation.

6. Organize your financial paperwork

Businesses must manage a wide array of financial documents—including income, expense records, payroll records and receipts—and it’s crucial that you take the time to locate and organize these documents before year-end. Not only will this make your tax reporting easier, but you’ll also have the financial information you need to plan for the coming year.

What should small businesses be particularly wary of when it comes to tax preparation? These three common concerns top the list:

• Not engaging a tax professional. Failing to seek advice from tax professionals or accountants can lead to missed opportunities for tax savings and compliance with tax laws. This is particularly important for small businesses, because tax laws change frequently. The rules/requirements for employee payroll calculations, depreciation on assets and tax-advantaged employee benefits can quickly get overwhelming.
• Not planning for taxes enough (or at all). Whether you use a tax professional or go it alone, if you don’t stay actively involved in the tax planning process, you can miss out on opportunities to reduce taxable income through strategic investments and tax credits. In addition, if you’ve ignored your estimated tax payments, you could face potential penalties.
• Poor recordkeeping. Just as with individuals, a lack of business recordkeeping can result in errors on tax returns, difficulties in substantiating deductions and credits, and potential issues during audits. Take the time now to get a handle on your paperwork—and if necessary, get caught up before the end of the year.

Whether you’re an individual or business, using these end-of-year tax tips can lead to reduced tax liability, improved financial management and a more stress-free tax experience in 2024.

Information is gathered from sources believed to be reliable; however, we cannot guarantee their accuracy.  Representatives of Ameritas are not authorized to provide tax or legal advice.  Please consult your tax advisor or attorney regarding your situation.