The landscape of tax regulations for small businesses is constantly evolving, and remaining apprised of changes is essential for small business compliance. Several important tax law changes have been implemented for the 2024 tax year that directly affects small businesses. These changes impact everything from deductions to credits, reporting requirements and worker classification.
Each year, the IRS makes inflation adjustments to various tax provisions. One of the most notable adjustments is the increase in standard deductions. The standard deduction for single filers is increasing to $14,600, and for married couples filing jointly it will increase to $29,200. This change can affect the taxable income of business owners who file as individuals.
Small businesses that operate as pass-through entities, such as sole proprietorships or partnerships, should be aware that these adjustments could result in a lower taxable income, which in turn can reduce the amount of tax owed. Additionally, businesses can continue to itemize deductions if they choose to do so, but the higher standard deduction might make this less beneficial for some.
One of the key provisions for small businesses filing for the 2024 tax year is the modification to bonus depreciation. Under the Tax Cuts and Jobs Act (TCJA), businesses were able to immediately deduct 100% of the cost of qualified property in the year it was purchased, known as bonus depreciation. However, this deduction is gradually decreasing.
In 2024, businesses will be able to deduct 80% of the cost of qualified property in the year of purchase, a reduction from the previous 100%. This phaseout will continue annually, with the deduction dropping to 60% in 2025, 40% in 2026, and 20% in 2027.
For businesses that use vehicles for operations, the IRS has increased the standard mileage rate for the 2024 tax year. The rate for business use of a vehicle increased to 67 cents per mile, up from 65.5 cents in 2023. This change means that businesses can deduct more for using a vehicle in their operations, which can result in substantial savings for companies that rely on transportation.
It’s important to maintain detailed records of mileage driven for business purposes, so you're claiming the proper deduction. Consider using accounting software or mileage-tracking apps to simplify this process and ensure accuracy.
The SECURE Act 2.0 introduced a major change for small businesses that want to provide retirement benefits to their employees. The new law increases the small employer pension startup credit. For businesses with fewer than 50 employees, this credit can cover up to 100% of the startup costs for retirement plans, such as 401(k)s or SIMPLE IRAs, for the first three years.
This is a significant benefit for small businesses that want to offer retirement savings options to employees but may have been deterred by the costs of setting up a plan. The credit can offset the setup and administrative costs, making it more feasible for smaller companies to provide these benefits.
One of the more controversial changes in recent years has been the adjustment to the 1099-K reporting thresholds. Previously, third-party payment platforms like PayPal and Venmo were required to report payments made through their platforms if the total amount exceeded $600 in a year.
The IRS has partially delayed the implementation of the stricter reporting requirement for 2024, giving small businesses more time to prepare. The threshold for the 2024 tax year is now $5,000.
This delay allows small business owners additional time to adjust their reporting systems and ensure that they comply with the new thresholds when they go into effect.
The IRS has become more stringent in its approach to worker classification. Misclassifying workers as independent contractors instead of employees can result in costly penalties for small businesses. The IRS is expected to ramp up enforcement efforts when processing 2024 tax filings.
The classification of workers affects how businesses report income, payroll taxes and various benefits. Small business owners should carefully review their workforce and make sure that they’re following the appropriate guidelines for classifying employees versus independent contractors.
Businesses that invest in clean energy solutions can still benefit from tax incentives for 2024. These include tax credits for the installation of renewable energy systems, such as solar panels, energy-efficient HVAC systems and electric vehicle charging stations.
Although the longevity of clean energy tax incentives are unclear for the upcoming years, investing in clean energy can still be an attractive selling point for customers who value environmental responsibility.
Navigating tax law changes can be complex, especially for small business owners who may not have an in-depth understanding of tax regulations. Partnering with a professional accountant, such as the team at H&H Accounting Services, can allow you to ensure your business is complying with new tax laws and taking full advantage of available credits and deductions.
As small business owners, it’s essential to stay informed about changes in tax laws to minimize your tax liabilities. By staying proactive and seeking professional advice, you can navigate these changes with confidence and set your business up for success.
For expert assistance with your tax planning and compliance, contact us at H&H Accounting Services today by calling (480) 561-5805.
