Latest Changes in Tax Laws Affecting Small Businesses in 2024

As tax filing season kicks off, small businesses should keep an eye out for several changes they should watch out for.

As one example, the IRS delayed requiring payment apps and online marketplaces to report payments over $600.

It also substitutesd the Consumer Price Index-U for a chain-weighted measure of inflation that will accelerate bracket creep over time.

Tax Rates

2024 will see most small businesses remain subject to an income tax rate of 21% based on revenue rather than depending on personal income of owners, as with graduate corporate tax rates. This rate applies equally for C corporations and pass-through entities such as sole proprietorships, partnerships and S corporations.

The Tax Cuts and Jobs Act of 2017 introduced numerous tax deductions for small business, but their incentives will expire without congressional action by 2025. NFIB continues to urge Congress to extend these benefits for small businesses – in particular the 20% Small Business Deduction that 81% of small business owners view as important.

Small businesses should also be familiar with excise taxes, which are levied on specific goods such as alcohol and gasoline, along with sales tax payments based on revenue in some states. Furthermore, inflation adjustments must also be addressed annually by the IRS in order to prevent so-called bracket creep – when rising costs force people into higher tax brackets or reduce deductions and credits.

Excise Taxes

The Tax Cut and Jobs Act raised deductibility of state and local taxes for pass-through businesses located in high tax states as well as expanding first year bonus depreciation deduction. This change impacts many taxpayers.

TCJA also closed a loophole that enabled billions in capital gains to escape taxation, compounding inequality. Furthermore, the estate tax exemption has been set at $5 million per person or $10 million per couple and added safeguards that ensure family farms and businesses pass to heirs fairly.

In 2024, the IRS will require payment processors to report all customer payments over $600 received on Form 1099-K. They have delayed implementing an obligation for small business owners to register with FinCEN (Financial Crimes Enforcement Network) due to industry feedback; registration rules will likely take effect around this time. For more details on this topic please see CCH AnswerConnect.

Property Taxes

State property tax policies can only go so far; local governments determine assessment rates and depend on this revenue for daily operations, so property tax relief bills have taken center stage this year in many state legislatures.

Colorado voters will decide in November if property tax cuts should continue, which could help plug an estimated annual hole of $3 billion for school and local government budgets. Supporters say this would foster economic growth while aiding businesses; opponents warn it could compromise services to those most in need.

New Hampshire’s rapid reduction of its individual income tax rate will boost its ranking on the individual tax component in 2024, as will decoupling it from business net interest deduction. Furthermore, expanding bonus expensing for qualified equipment will foster small business expansion – one of the biggest changes to small business tax law for years.

Bonus Depreciation

The tax code allows for depreciating certain business equipment over time for tax advantages, including tow trucks, screen printing/embroidery equipment, landscaping tools such as skid steers and compact track loaders.

Before the Tax Cuts and Job Act (TCJA), qualified fixed assets acquired and placed into service during any tax year were eligible for 50% bonus depreciation; under TCJA this has been increased to 100% bonus depreciation if acquired between September 28, 2017 and January 1, 2023.

Although Section 179 and bonus depreciation are distinct, when combined they can increase the benefits from buying new equipment. Keep in mind that 100 percent bonus depreciation limits and phase-out thresholds are temporary; beginning 2023 they’ll decline by 20% annually until they eventually phase out completely. A permanent 100% bonus depreciation would increase after-tax income by an average of 0.2 percent per income quintile according to Tax Foundation data.