Updated for tax year 2024.
Small business owners, it’s time to expand your holiday shopping list. In addition to buying gifts for loved ones, you can also make smart purchases for your business to help reduce your taxable income before the end of the year.
Timing is everything for small business tax savings
The end of the year is the perfect time for small business owners, sole proprietors, and self-employed individuals to make tax-deductible purchases and reduce their tax liability. Knowing when to make these business expenses can have a significant impact on your bottom line, especially when it comes to your income tax bill owed to the IRS.
But how do you determine necessary spending versus unnecessary spending for tax purposes? When is it best to make a purchase now rather than wait until next year? We’re here to help answer these questions and more.
At a glance
- End-of-year business purchases can help reduce your taxable income.
- Consider buying before year-end if your business income was unusually high this tax year or if you’ve been delaying essential expenses.
- Avoid unnecessary spending — focus on purchases that will genuinely benefit your business.
What can I purchase for a small business tax deduction?
You can write off a variety of small business expenses on your tax return, including travel expenses, subscriptions, supplies, and business insurance premiums. As long as they were purchased for business purposes, they’re typically fair game.
Eligible deductions also include equipment purchases under Section 179. Unlike bonus depreciation, the Section 179 deduction allows small businesses to immediately write off the full purchase price of qualifying equipment or software (up to $1,220,000 for tax year 2024). Taking advantage of Section 179 can help you lower your taxable income and your tax bill significantly.
Other deductions include health insurance, home office expenses, and bookkeeping tools for business use. If you need more ideas, check out our ultimate list of business tax deductions for small business owners.
Should I purchase now or wait until next year?
Timing your business expenses can make a difference in reducing your tax bill. Let’s look at when it makes sense to make a purchase before the end of the year versus waiting until the next tax year.
When to purchase before year-end
- Your business income was higher than usual this year.
If your business earned more income than expected this year, making purchases before the end of the tax year can help reduce your taxable income. This is especially important if you’re at risk of moving into a higher tax bracket. By purchasing needed equipment or supplies, you can lower your taxable business income and potentially decrease your income tax rate. - You’ve been putting off a necessary purchase.
If there’s a needed purchase that you’ve delayed — like replacing old equipment or making property repairs — now may be the perfect time to make that investment. Buying now allows you to write off the expense immediately, potentially saving you from dealing with depreciation next year.
When to wait until next year
- Income was tight this year.
If your business income was lower than expected and cash flow is tight, it may be best to delay any non-essential purchases until next year. You don’t want to stretch your resources too thin — reducing your taxable income shouldn’t come at the expense of financial stability. - You don’t need anything right now.
It’s not usually a good idea to make purchases simply to get a tax deduction. If you don’t need anything else for your business, consider saving your funds for future expenses that will have a real impact on your operations.
Other ways to save on small business taxes
If you have extra business income this year but don’t want to make unnecessary purchases, there are still ways to reduce your taxable income and save on federal taxes. Here are some tax planning ideas to consider:
- Contribute to a retirement plan: Contributions to a retirement account like a SEP IRA or traditional IRA can help reduce your taxable income. Small business owners may also benefit from setting up a retirement plan for their employees.
- Pay January’s bills early: If your business has upcoming bills — such as insurance premiums or subscriptions — you can always pay them before the end of the year to maximize your business tax deductions.
- Delay invoices: Depending on your accounting method, delaying invoices until the end of the year can push taxable business income into next year, potentially lowering your current year’s tax bill.
Make necessary small business purchases before the end of the year.
If your business could benefit from new equipment, supplies, or other eligible business expenses, December is the perfect time to make those investments. Not only will you improve your business, but you’ll also be able to take advantage of tax deductions to reduce your income tax bill.
To get the most out of your tax planning efforts, it never hurts to consult a tax professional, CPA, or tax advisor. They can help you navigate tax laws and ensure you maximize your small business tax benefits. Plus, if you file your business tax return with TaxAct®, you have the option to add Xpert Assist to get personalized advice from real tax experts1.
The bottom line
Making smart purchases before the end of the year can significantly impact your tax savings and help lower your overall tax liability. Don’t forget to take advantage of deductions like Section 179, health insurance premiums, and retirement plan contributions for taxpayers — all of which can make a big difference in your taxable income.
Want to learn more about how to save on small business taxes? We’ve got you covered with more tax tips and guides for small business owners, entrepreneurs, and self-employed individuals.
And if you’re ready to get tax filing over with, TaxAct Business is ready and waiting to help make the tax preparation process as painless as possible.