Curious about the changes in taxes for small businesses? As a business owner, it’s important to stay updated and informed about tax law changes. Because regulations change all the time, there may be different rules, credits, and deductions that could affect how much you owe the IRS. These new rules could also impact your cash flow, planning, and day-to-day operations.

For this reason, it’s important that you’re aware of all the tax laws that have changed since 2023. That way, you’ll be less stressed and better prepared for April 15th – Tax Day! Here are the key changes that you’ll want to keep in mind when filing your taxes.

Changes in Taxes for Small Businesses for the 2024 Tax Year

Federal Income Tax Bracket

To compensate for inflation, the federal income tax bracket threshold has been adjusted for 2024. This affects business owners who report business income as individual income (sole proprietorship, partnership, LLC, or S corporation businesses). 

For example, the 22% tax rate for single filers went from $44,726 – $95,375 to $48,476 – $103,350. So if you made $46,000 this year, you’ll actually move down a bracket and only need to pay 12% in taxes.

The Secure Act 2.0

Passed in 2022, the Secure Act 2.0 aims to improve the country’s retirement system for both employers and employees. Features of the act include automatic enrollment requirements, higher contribution limits, and student loan debt matching. However, there are a couple of new changes that may also impact you as a small business.

For example, small businesses can now claim tax credits to offset the cost of offering a retirement plan to employees. Before the Secure Act 2.0, employers could only claim 50%. But now, eligible businesses may include 100% of their startup costs with a maximum credit of $5,000 a year for three years.

Section 179

Section 179 is a type of tax deduction that allows businesses to have an immediate deduction for depreciable expenses. This includes things like machinery equipment, software, computers, and vehicles. By taking the deduction immediately, owners can deduct the full price rather than the depreciation price later.

The maximum amount you’re allowed to deduct has increased $1,220,000 to adjust for inflation. The phase-out threshold has also increased to now start at $3,050,000. 

Standard Mileage Rate

If you currently use your persona vehicle for work, you can now take advantage of a higher standard mileage rate. For 2024, you can now deduct 67 cents per mile driven, which his up 1.5 cents from the previous year. This rate applies to gasoline-powered cars as well as hybrid electric cards.

Business Meals Deduction

To support the hospitality industry during the pandemic, companies were allowed to expense 100% of business-related meals. But this provision expired for the 2024 tax year. Now, businesses can only write-off 50% of their business meal expenses.

Earned Income Tax Credit

The EITC is an important credit that can reduce the tax liability for some low to moderate earners. The threshold of income has increased from 2023 to 2024. 

For example, the threshold for single filers with no dependents has increased from $17,640 to $18,591 (or $24,210 to $25,511 for joint filers). In this case, the maximum amount of credit you’ll receive is $600. If you have two dependents, the bracket will have increased from $52,918 to $55,768 (single filer) or $59,478 to $62,688 (joint filers).

Capital Gains Taxes

If you sold business property this past year, you may be liable for capital gains taxes. Besides real estate, this tax is added to other assets like stocks and bonds, cryptocurrency, or collectibles (jewelry, art, etc.).

If your total taxable income is less than $47,025, you won’t be required to pay any capital gains tax. This amount has increased from 2023, when the income threshold was $44,625. Those who make between $47,026 and $518,900 will be required to pay 15% on the gains, while high earners will be liable for 20%.

Things That Remain Unchanged for the 2024 Tax Year

Corporate Tax Rate

Since 2017, the corporate tax rate has been set at 21%. This rate will remain until a future legislation gets written into law.

State and Local Tax Deduction Cap

The State and Local Tax (SALT) Deduction Cap remains at $10,000. This changes how much you are able to deduct on local income, property, or sales tax.

Qualified Business Income Deduction

Partnerships and S Corporations will still be allowed to deduct up to 20% of their qualified business income. Keep in mind this does not include wage income, capital gains or losses, or other non-taxable income items.

From 1099-K

For 2024, the threshold of filing a 1099-K for third-party payment processors remains at $600. If you’ve made more than $600 through Paypal, Stripe, or Venmo, you’ll need to file a 1099-K. Gig workers and freelancers should track incoming payments and income to ensure accurate reporting. However, 1099-Ks also apply to small business using these platforms for payments for their goods and services.

Medicare Tax Rate

If you’re an employer, you’ll still be required to pay the 1.45% Medicare tax rate. The 2.9% tax rate also remains the same for self-employed individuals. There’s also a Medicare surtax of 0.9% for self-employment income for those earning more than $200,000 (single filer) or $250,000 (joint filers).Tax laws and regulations seem to change every year, which can make filing taxes a daunting task.

But some of these changes in tax for small business may be beneficial to your business. It’s always a good idea to work with a professional tax advisor who can assist you with these new rules and regulations. They can also help you manage your debt-to-income ratio and ensure you have all the necessary reports for the end of the year.