Maximize Your Year-End Tax Savings: A Simple Guide to Charitable Donations and Business Expenses

As the year comes to an end, it’s a great time to review your finances and make sure you're getting the most out of your tax deductions. Whether you're an individual or a business owner, planning ahead can help you save money when it’s time to file your taxes. This guide will show you some key deductions to take advantage of, including charitable donations and business expenses, before the year is over.

1. Maximizing Charitable Donations

Making donations to charity not only helps others but can also lower your taxable income. Here’s how you can make the most of it:

Cash Donations:

• You can deduct cash donations to qualified charities up to 60% of your adjusted gross income (AGI) for the year.

• If you're planning to donate, make sure the donation is processed before December 31 so it counts for this year.

Donating Goods:

• Donating items like clothing, furniture, or electronics is also deductible. Just make sure to get a receipt and determine the fair value of your items.

• Consider giving away things you no longer use but are still in good condition—such as clothes to Goodwill—to get a tax break.

Donor-Advised Funds (DAFs):

• A DAF allows you to donate a lump sum of assets and claim the tax deduction now, but give the money to a charity over time.

Qualified Charitable Distributions (QCDs):

• If you’re over 70½, donating directly from your IRA can help lower your taxable income. You can donate up to $100,000 of your required minimum distribution (RMD) to charity.

Documenting Your Donations

Taking advantage of the tax benefits from charitable donations requires accurate documentation. If your contribution exceeds $250, you will need a written acknowledgment from the charity that includes:

• The amount donated or a description of the items given.

• The date of the contribution.

• A statement confirming whether any goods or services were provided in return.

For donations less than $250, keeping a record through receipts or bank statements can suffice when it's time to file your taxes.

2. Year-End Business Expenses: Deducting for Savings

For business owners, December is the time to make sure you're taking advantage of all possible deductions that can lower your taxes. Here’s how:

Prepay Expenses:

• You can prepay some expenses, like rent or insurance, for next year. This allows you to take the deduction in the current year.

Employee Bonuses:

• Consider giving year-end bonuses to employees. These bonuses are tax-deductible and can help you keep your best staff.

Interest on Loans:

• If your business has loans, paying off the interest before the year ends can help maximize your tax deductions.

Depreciation and Section 179 Deductions:

• The Section 179 deduction allows you to immediately deduct the cost of certain assets, like equipment or vehicles, up to $1,160,000.

• Bonus depreciation lets businesses deduct 80% of the cost of qualifying assets in the year they’re purchased.

Write-Off Bad Debts:

• If your business has unpaid invoices that you won’t be able to collect, you can write them off as a loss and reduce your taxable income.

Travel and Meals:

• Business-related travel expenses, including lodging and meals, are tax-deductible. Business meals are typically 50% deductible (there are some exceptions).

Retirement Contributions:

• If you're a business owner, contributing to retirement plans like a SEP IRA or Solo 401(k) can reduce your taxable income. You can contribute to these plans until the tax filing deadline (including extensions).

3. Other Year-End Tax Strategies

Besides donations and business expenses, here are a few other things to consider before the year ends:

• Maximize Retirement Contributions: Contribute as much as possible to retirement accounts like IRAs or 401(k)s to lower your taxable income.

• Review Your Tax Withholding: If you've had major life changes (like marriage or a new child), it’s a good idea to check your tax withholding. Adjusting it before the year ends can help avoid underpayment penalties.

Conclusion

The end of the year is a great time to take action to lower your taxes. Whether it’s through charitable giving or planning your business expenses, there are plenty of ways to reduce your taxable income and improve your financial situation. Be sure to work with a tax professional to make sure you're using all the deductions available to you.

By planning now, you’ll be in a strong position for the year ahead, with a tax strategy that helps you save money and plan for the future.

If you need assistance with tax planning or have questions about maximizing your year-end deductions, LedgerSavvy Solutions is here to help. Our experienced team can guide you through the process, ensuring that you take full advantage of all the tax-saving opportunities available. Contact us today to get started! Call: 866-GLSAVVY (866-457-2889)