LA Tax Guy - Josh Levy, CPA

Timing Income and Deductions

Smart tax planning isn’t only about what you deduct — it’s also when.

✅ If you expect lower income next year: Accelerate income into 2025 to take advantage of lower rates.
✅ If you expect higher income next year: Defer income (delay invoices or client payments) until January.

💡 For cash-basis businesses: You recognize income when received and expenses when paid. That means paying certain expenses now — or holding off on collecting payment — can shift your tax liability between years strategically.

Maximize Your Retirement Contributions Before Year-End

One of the simplest ways to reduce your taxable income before December 31 is to maximize your retirement plan contributions.

✅ Employees (401(k), 403(b), etc.): You can contribute up to $23,500 for 2025.
✅ Catch-up (age 50+): An extra $7,500, for a total of $31,000.
✅ Self-Employed: You can open a Solo 401(k) or SEP IRA.
• Solo 401(k): Employee deferral up to $23,500 + employer contribution up to 25% of compensation (total limit $70,000 for 2025).
• SEP IRA: Contribute up to 25% of net earnings, capped at $70,000 for 2025.

💡 Tip: Contributions can often be made up to the tax filing deadline (with extension), but the plan itself must be set up before year-end to count for 2025.

Small business owners, don’t miss out on the Section 199A Qualified Business Income (QBI) deduction! This allows eligible businesses to deduct up to 20% of their QBI, significantly lowering taxable income. Example: A business with $100,000 in QBI could reduce taxable income by $20,000. Ensure your business qualifies and optimize income thresholds before December 31!

Evaluate Bonus Depreciation and Section 179 Deductions
Need new business equipment? Purchasing eligible assets like computers, machinery, or vehicles by December 31 could provide major tax savings. Under Section 179, you can deduct up to $1.22million of qualifying purchases in 2024, while bonus depreciation allows you to immediately expense 60% of eligible assets. For example, buying a $20,000 vehicle for business use could save you thousands on taxes this year!

Have investments that didn’t perform well? You can use tax loss harvesting to turn those losses into tax savings! Sell losing investments by December 31 to offset capital gains and reduce your taxable income. For instance, if you have $10,000 in gains but sell a losing stock with a $5,000 loss, you’ll only pay taxes on $5,000 of gains. Plus, if your losses exceed your gains, you can deduct up to $3,000 against other income and carry forward excess losses to future years!

Don’t let penalties eat into your tax savings! If you’ve earned more income than expected this year, make an additional estimated payment by January 15 to cover your tax liability. Safe harbor rules protect you from penalties if you pay at least 100% of last year’s tax liability (110% for higher earners) or 90% of your current year’s liability. Stay proactive and avoid surprises.

Cash-basis business owners: Want a quick tax deduction? Prepaying expenses like rent, insurance, or supplies before December 31 lets you take the deduction this year. For example, if you pay $3,000 for next quarter’s rent now, that’s $3,000 less in taxable income for 2024. Be strategic—focus on expenses you’d pay early next year anyway!”

Own property? can become your best tax-saving friend! Property can depreciation on rental properties, to offset and reduce taxable income. The IRS allows a deduction over 27.5 years for residential rental property. Example: For a property worth $300,000 (excluding land), you could deduct $10,909 per year. Additionally, strategies like cost segregation can depreciation on certain parts of the property, allowing even larger deductions in the early years of .

Are you self-employed and paying for your out of pocket? You could benefit from a valuable ! If you’re self-employed with a net , you may be eligible to deduct 100% of health insurance premiums for yourself, your spouse, and dependents. This can be claimed directly on your Form 1040, reducing your without itemizing. Example: A self-employed individual paying $500/month could see an annual deduction of $6,000, which could reduce their taxable income by a similar amount, depending on their tax bracket.

Did you know that high-income earners who surpass Roth IRA income limits can still contribute through a Backdoor Roth IRA? A Backdoor allows you to convert after-tax contributions in a traditional IRA to a Roth IRA, letting your grow tax-free. This strategy is ideal for those who want to enjoy tax- and withdrawals in retirement, even if they earn too much to contribute directly to a Roth . Example: By contributing $7,000 annually via this , over 20 years, you could potentially build significant tax-free for retirement.