5 Tax Strategies Businesses Should Consider Before Year - End 2024
As 2024 draws close, businesses must review their tax strategies to maximize savings and ensure compliance. The right planning can make a significant difference in your tax liability and set you up for a strong start in the new year. One area that often yields substantial tax benefits, especially for businesses with significant real estate investments, is cost segregation. Below are five tax strategies businesses should consider before year-end 2024, with a focus on leveraging cost segregation.
1. Accelerated Depreciation through Cost Segregation
Cost segregation is a powerful tax strategy that allows businesses to accelerate depreciation on certain components of their property. By identifying and reclassifying personal property assets that are typically embedded in real estate, such as fixtures, plumbing, and electrical systems, you can shift these assets into shorter depreciation categories (5, 7, or 15 years instead of the standard 27.5 or 39 years).
Why Now?
With 2024 being the last year of 80% bonus depreciation, it’s an opportune time to maximize this benefit. If you’ve recently purchased, constructed, or renovated property, conducting a cost segregation study before year-end can result in significant tax savings, improving your cash flow.
2. Maximize Section 179 Expensing
Section 179 allows businesses to immediately expense qualifying property rather than depreciating it over time. In 2024, the limit for Section 179 is $1,160,000, with a phase-out threshold of $2,890,000. This is particularly beneficial for businesses investing in equipment or property improvements.
Why Now?
Coupling Section 179 expensing with a cost segregation study can maximize the tax benefits of your real estate investments. By identifying assets that qualify for Section 179, you can reduce your taxable income significantly before the year-end.
3. Review and Utilize the Qualified Improvement Property (QIP) Deduction
Qualified Improvement Property (QIP) refers to improvements made to the interior of non-residential buildings. Under current tax law, QIP has a 15-year recovery period and is eligible for 100% bonus depreciation. This means you can deduct the full cost of QIP in the year the improvements are made.
Why Now?
If you’ve made improvements to your commercial property in 2024, conducting a cost segregation study can help you identify QIP and take full advantage of this deduction. The combination of QIP and cost segregation is a powerful tool for reducing your tax liability.
4. Optimize Real Estate Holdings for Tax Efficiency
Real estate is often one of the most significant investments for a business, and it’s essential to manage it tax-efficiently. Beyond cost segregation, consider strategies such as like-kind exchanges (Section 1031) to defer capital gains taxes on the sale of property or using installment sales to spread tax liability over several years.
Why Now?
Year-end is the ideal time to review your real estate portfolio and explore opportunities for tax deferral or reduction. By integrating cost segregation with other real estate strategies, you can maximize the tax benefits and preserve more capital for your business.
5. Plan for Future Tax Law Changes
Tax laws are constantly evolving, and it’s important to stay ahead of potential changes that could impact your business. For example, the scheduled reduction in bonus depreciation from 80% in 2024 to 60% in 2025 means that future opportunities for accelerated depreciation may be limited.
Why Now?
Taking advantage of current tax provisions, such as cost segregation and bonus depreciation, can help mitigate the impact of future tax law changes. By planning, you can lock in tax savings now and prepare your business for any upcoming shifts in tax policy.
Conclusion
As the end of 2024 approaches, now is the time to take a proactive approach to your tax planning. Cost segregation is a cornerstone strategy that can unlock significant tax savings, especially when combined with other year-end tax strategies. Whether you’re looking to accelerate depreciation, optimize your real estate holdings, or prepare for future tax changes, these five strategies can help you minimize your tax burden and position your business for success in the new year.
If you haven’t yet explored how cost segregation can benefit your business, now is the time to act. Reach out to a tax professional or cost segregation specialist to conduct a study before year-end and take full advantage of the tax-saving opportunities available to you.