Year-End Tax Planning for Expat Businesses

There are a number of end-of-year tax strategies businesses can use to reduce their tax burden for 2024. Here’s the lowdown on some of the best options.

Maximize Section 179 and Bonus Depreciation

If you plan to purchase equipment for your business, the timing couldn’t be better. For 2024, Section 179 allows you to deduct the full cost of qualifying new or used equipment placed in service before December 31. This year’s deduction limit is $1.22 million, with a phase-out threshold of $3.05 million. This includes machinery, software, and business-use vehicles, provided they’re used at least 50% for business purposes.

In addition to Section 179, businesses can still take advantage of bonus depreciation, though the rate has decreased to 60% in 2024. Unlike Section 179, bonus depreciation applies to new equipment only, but there’s no limit on the amount you can deduct.

When purchasing equipment, understanding depreciation conventions is key. These rules determine how much depreciation you can deduct in the first year based on the purchase date:

• Half-Year Convention: Most equipment is treated as though it was placed in service at the midpoint of the year, no matter when you actually purchased it.
• Mid-Quarter Convention: If more than 40% of your equipment purchases occur in the final quarter, this rule applies instead. It reduces your first-year depreciation by assuming equipment was placed in service mid-quarter.
• Mid-Month Convention: This applies to real property, like buildings, and assumes property is placed in service at the midpoint of the month.

For the best results, plan your purchases early. Waiting until the last quarter can trigger the mid-quarter convention, limiting your deductions.

Partnership or S-Corporation Basis Adjustments

If your partnership or S-corporation experienced losses this year, you’ll only be able to deduct those losses up to your basis in the business. Your basis reflects how much you’ve invested in the business, and it’s critical to keep it sufficient to claim deductions.
To increase your basis before year-end, you can:

• Contribute additional capital to the business.
• Lend money directly to the business.

However, adding to your basis means you’re putting more funds at risk, so it’s important to weigh this decision carefully. If you’re unsure how to proceed, we’re here to help you figure out the right move.

Take Advantage of Retirement Contributions

Contributing to a retirement plan is a simple yet effective way to reduce your taxable income. For self-employed expats, options like the Solo 401(k) or SEP IRA allow you to make significant contributions while planning for the future.

• A Solo 401(k) allows contributions up to $69,000 for 2024, depending on your income.
• A SEP IRA permits contributions up to 25% of your net earnings, capped at $69,000.

Remember that Solo 401(k) plans must be established by December 31 to take advantage of this year’s deductions, even if contributions are made after the year ends. Acting early ensures you don’t miss out.

Dividend Planning for C-Corporations

If your business is structured as a C-corporation, now is a good time to consider issuing dividends. Holding on to excessive profits can attract IRS penalties under the Accumulated Earnings Tax. By issuing dividends, you can reduce your accumulated earnings while providing a benefit to shareholders.

Qualified dividends are taxed at favorable rates—15% for most taxpayers and 20% for higher-income earners. Issuing dividends before year-end can help you optimize your tax position and stay compliant.

Review and Update Your Business Budget

Year-end is the ideal time to take a hard look at your business finances and plan for the year ahead. Compare your actual revenues and expenses to your current budget and identify areas that need improvement. If you didn’t have a formal budget this year, now’s the time to create one.

A well-prepared budget helps ensure cash flow, cut unnecessary expenses, and set realistic growth goals. By tracking monthly progress against your budget, you can quickly spot and address shortfalls. If you’re not sure where to start, we can help you put together a budget that makes sense for your business.

Check Your Estimated Tax Payments

If you’re self-employed or running an expat business, you likely need to make quarterly estimated tax payments. If your income fluctuated this year, it’s important to review your payments to ensure they’re accurate. Underpaying can lead to penalties while overpaying ties up cash that could be used elsewhere in your business.

The final quarterly payment for 2024 is due January 15, 2025. A quick review before year-end can help you avoid surprises and penalties.

Foreign Tax Considerations for Expat Businesses

As an expat business owner, you may be eligible for the Foreign Tax Credit, which allows you to offset taxes paid to foreign governments against your U.S. tax liability. It’s important to keep detailed records of any taxes paid abroad to maximize this benefit. Additionally, fluctuations in exchange rates can create taxable gains or losses, so review your financials carefully.

Consult with Tax Professionals

Tax laws are complex and subject to change. Consulting with a tax professional who specializes in expat taxation can provide personalized advice tailored to your unique circumstances. At Tax Samaritan, our team of Enrolled Agents has over 25 years of experience assisting U.S. taxpayers living abroad. We offer year-end tax planning services to help minimize your tax liability and ensure compliance with all applicable laws.

Don’t leave your tax savings to chance. Call us at 775-305-1040 or email us at help@taxsamaritan.com to request a free consultation. Let’s make this year-end count for your business.

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.