Set up last-minute retirement plans, use accountable reimbursements for corporate travel, defend Tesla depreciation, and explore solo 401(k) options:
- Are you a sole proprietor looking for ways to reduce your 2024 tax bill while securing your financial future? Setting up a self-employed retirement plan could be your solution—and it’s not too late!
- The right way to ask your C or S corporation for travel reimbursements
- Did you purchase a 2022 Tesla Model X (or a similar crossover vehicle) and claim 100% bonus depreciation on your 2022 tax return?
- If you operate your business as a solely owned C or S corporation with no employees, several excellent retirement plans are available to you that can provide significant tax deductions and help you build wealth for retirement
The Best Sole Proprietor Retirement Plans to Reduce Your 2024 Tax Bill
Are you a sole proprietor looking for ways to reduce your 2024 tax bill while securing your financial future? Setting up a self-employed retirement plan could be your solution—and it’s not too late!
You have several options that can provide significant tax savings, including the following:
- SEP-IRA. Simple to set up and allows contributions of up to $69,000 for 2024.
- Keogh plan. Similar to a SEP but allows borrowing from your account.
- SIMPLE IRA. Best for modest income levels with contributions of up to $19,500 if you’re 50 or older.
- Solo 401(k). Offers the highest contribution limits, especially if you’re 50 or older, but involves more paperwork.
Each plan has unique benefits depending on your income and needs. Even better, you can still establish one of these plans and make deductible contributions for your 2024 tax return, as long as you do so before you file that tax return.
The Right Way to Ask Your C or S Corporation for Travel Reimbursements
Here’s a summary on your payments of corporate expenses.
Your Corporation Is a Separate Legal Entity
As a business owner operating through a corporation, you need to remember that the corporation is a distinct legal entity separate from you.
Avoiding Costly Mistakes
If you incur expenses related to business travel, meals, lodging, or mileage without seeking reimbursement from your corporation, the corporation does not receive a tax deduction for these costs. Furthermore, you cannot personally deduct these expenses on your individual tax return, as the Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed employee business expenses as an itemized deduction from 2018 through at least 2025.
The Right Way: Accountable Plan Reimbursements
To ensure tax compliance and financial efficiency, you should submit an expense report to your corporation and receive reimbursement under what is known as an “accountable plan.” When structured correctly, an accountable plan provides the following benefits:
- You receive tax-free reimbursements for legitimate business expenses.
- Your corporation gets the full tax deduction for the expenses reimbursed.
- Proper documentation protects you in the event of an IRS audit.
Steps to Implement an Accountable Plan
To maintain compliance and ensure proper reimbursement, follow these best practices:
- Maintain detailed records. Keep receipts, mileage logs, and business purpose explanations for all expenses.
- Submit expense reports. Provide written reports to your corporation, outlining the details of each expense.
- Ensure timely reimbursement. Have your corporation reimburse you within a reasonable time frame.
- Avoid overpayments. Return any excess amount if your corporation advances funds for expenses.
Take Action Now
To ensure that you maximize tax benefits and stay compliant, implement a formal reimbursement process.
IRS Incorrectly Disallows $120,000 Tesla Model X Tax Write-Off
Did you purchase a 2022 Tesla Model X (or a similar crossover vehicle) and claim 100% bonus depreciation on your 2022 tax return? If so, you should know that the IRS has incorrectly disallowed these deductions, arguing that the Model X is a passenger automobile subject to luxury auto depreciation limits.
In a recent case, the IRS incorrectly disallowed a $120,000 deduction—reducing it to just $19,200 and creating unexpected tax liabilities.
Why the IRS Is Wrong
Under tax code Section 280F, passenger automobiles are subject to strict depreciation limits if their curb weight is 6,000 pounds or less. However, the tax code applies a different standard for trucks and vans, using their gross vehicle weight rating (GVWR).
According to Tesla, the Tesla Model X is an SUV and technically (under tax law) a truck with a GVWR of 6,250 pounds, which exceeds the 6,000-pound threshold and qualifies the vehicle for full bonus depreciation.
The U.S. Department of Transportation classifies the Tesla Model X as a non-passenger automobile due to its three-row seating and flat-folding interior, reinforcing that it should not be subject to the luxury auto limits.
What to Do If the IRS Challenges Your Rightful Deduction
If an IRS examiner disallows your rightful deduction, take the following steps:
- Request a supervisor review. Your dispute might get resolved at this level.
- Consider mediation. A non-binding option may lead to a favorable resolution.
- File an appeal. The IRS Independent Office of Appeals will likely rule in your favor (remember, you are technically correct on this deduction).
- Go to Tax Court if necessary. Given that you have precise legal and regulatory support for your rightful deduction, you should win—and you could collect attorney fees too.
Protect Your Deduction
An IRS examiner’s opinion is not final. When you know you are right, you have to stand your ground. While you can often resolve an issue like this alone, professional representation can help simplify the process.
Best Retirement Plan Options for a Solo-Owned C or S Corporation
If you operate your business as a solely owned C or S corporation with no employees, several excellent retirement plans are available to you that can provide significant tax deductions and help you build wealth for retirement.
Some of the best options include:
- SEP-IRA. Easy to set up and allows employer contributions of up to $69,000 for 2024 ($70,000 for 2025).
- Solo 401(k). Offers the highest contribution limits, with a combination of salary deferrals and employer contributions—up to $81,250 for 2025 if you qualify for super catch-up contributions.
- SIMPLE IRA. A great choice for modest salaries, allowing employee deferrals and employer-matching contributions.
- Profit-sharing plan. Flexible employer contributions of up to 25 percent of salary, with loan options if needed.
Each of these plans comes with different benefits and administrative requirements, so choosing the right one depends on your salary level, cash flow, and long-term financial goals.
If you haven’t yet set up a retirement plan, there’s still time to act for the 2024 tax year, depending on the plan you choose.
Contact your tax and financial advisors to determine the best moves for your situation.