Year-end Tax Tips For Expat Business Owners And Entrepreneurs Abroad

Here are our 5 year-end tax tips for entrepreneurs:

(You can read about year-end tax planning for individual US taxpayers here.)

1. Maximize your retirement savings

Entrepreneurs have unique opportunities to save for retirement. If you own a company without full-time employees other than yourself, consider opening a Solo 401k by year-end to take advantage of generous retirement contribution options. Even more importantly, you can contribute up to $19k into a Roth Solo 401k which has tax free withdrawals.

If you already have a Solo 401k, make sure to align your salary with your contribution level. The Solo 401k must be opened before December 31, 2024, in order to be eligible for the 2024 tax year.

Also, consider a defined benefit profit-sharing plan. We have helped many entrepreneurs open a defined benefit plan. It allows sole owner entrepreneurs to put away hundreds of thousands of dollars to a pension account, based on their income and age.

2. Maximize your business deductions

You cannot deduct losses from business activities in which you don’t “materially participate”. There is still time to increase your participation in passive activities to meet the participation requirements.

If you expect a loss, make sure you meet the material participation standard.

Tests include:

• Spend over 500 hours per year in day-to-day operations.
• Perform substantially all the work in the activity.
• Complete more than 100 hours per year and more than anyone else.

This could also apply to real estate investment activities. If you are actively managing a property and actively looking for real estate deals, you might be able to deduct losses.

3. Optimize your business expenses

Unlike many eliminated deductions for individuals, deductions for businesses remained largely intact under the 2017 tax law. It even introduced new opportunities for higher deductions like the 100% bonus depreciation.

Under the Tax Cuts and Jobs Act, you might be able to write off 100% of qualified assets acquired in 2024.  Consult with your tax advisor for what types of assets qualify for the 100% bonus depreciation.

Therefore, you should make major qualifying purchases, such as equipment, before the end of this year.

4. Adjust your inventory accounting

If you haven’t already done so last year, review your inventory accounting to see if you should adjust your accounting method. Small retailers with less than $25 million in sales and hold inventory can elect to treat the inventory as “non-incidental” material and supplies. (Before 2018, the threshold was $1 million.)

This can simplify accounting and even result in significant tax savings, especially for retailers and Amazon resellers if they qualify.

5. Reevaluate your business structure

Now is the time to tax-optimize your business structure. Depending on your situation, it might be beneficial to make a 962 election, own the foreign company in a C Corp, or just convert the entire business to an S Corp.

We have also helped more clients move to Puerto Rico to take advantage of Act 60. This act offers zero taxes on capital gains and a corporate tax of only 4%.

Our sister company, Global Expat Advisors, specializes in offshore business structuring. If you haven’t already done so, schedule a structuring consultation.

Year-end tax planning for businesses pays off

Bring the year to a good close for your business and set it up the right way for the next year. It is difficult enough when everything is based in the US. Having an international business or running a business when living abroad adds complexity but also opens opportunities.

Review your tax situation, retirement planning, and business structure with an experienced advisor.