Most Important Tax Changes for 2024 for Small Businesses
The decisions you make in your business this year will influence your tax bill next year; that's why staying on top of the tax changes for 2024 is essential. Asking for help from tax professionals can prevent you from making costly wrong steps and help you make the most of the current tax laws as you grow your business. Paying just the right amount of tax improves your cash flow and ensures you have as much money as possible to reinvest.
1. 2024 Changes to Federal Income Tax Brackets
The new tax brackets for 2024 will be favorable to some self-employed taxpayers. For example, a small business owner who makes $46,000 would have fallen into the 22% federal income tax bracket for the 2023 tax year. However, with the same income in 2024, the same taxpayer will only pay 12% federal income tax (plus self-employment taxes).
2024 Federal Income Tax Brackets
The 2024 federal income tax brackets have been adjusted to allow a little more than 5% for inflation. The rates for 2024 are as follows:
|
Tax Rate |
Single |
Married filing separately |
Head of household |
Married filing jointly |
|
10% |
Up to $11,600 |
Up to $11,600 |
Up to $16,550 |
Up to $23,200 |
|
12% |
Over $11,600 up to $47,150 |
Over $11,600 up to $47,150 |
Over $16,550 up to $63,100 |
Over $23,200 up to $94,300 |
|
22% |
Over $47,150 up to $100,525 |
Over $47,150 up to $100,525 |
Over $63,100 up to $100,500 |
Over $94,300 up to $201,050 |
|
24% |
Over $100,525 up to $191,950 |
Over $100,525 up to $191,950 |
Over $100,500 up to $191,950 |
Over $201,050 up to $383,900 |
|
32% |
Over $191,950 up to $243,725 |
Over $191,950 up to $243,725 |
Over $191,950 up to $243,700 |
Over $383,900 up to $487,450 |
|
35% |
Over $243,725 up to $609,350 |
Over $243,725 up to $365,600 |
Over $243,700 up to $609,350 |
Over $487,450 up to $731,200 |
|
37% |
Over $609,350 |
Over $365,600 |
Over $609,350 |
Over $731,200 |
Source: https://www.irs.gov/pub/irs-drop/rp-23-34.pdf (pages 5-7 of the PDF)
Be Aware of Income Tax Changes in Your State
Changes to state income tax will vary from state to state. Be aware of any changes that could affect you or your business if you live in a state that requires you to pay state income tax.
2. Standard Deduction Changes for 2024
Taxpayers (including business owners) can choose between the standard deduction or itemized deductions on their income. Many taxpayers opt for the standard deduction provided by the Internal Revenue Service (IRS) because of the simplicity it offers. Standard deductions are fixed amounts that taxpayers can use to reduce taxable income. The amount you can claim will be based on your filing status.
Important note: The standard deduction or the itemized deduction should not be confused with deducting self-employed business expenses. Working with tax planning experts is the best way to optimize your deductions against various types of income.
The main changes pertaining to standard deductions for the 2024 tax year are as follows:
The standard deduction for married couples filing jointly rises $1,500 to $29,200. This represents an increase of $1,500.
Single taxpayers see the standard deduction limit rise $750 to $14,600.
Head of households (unmarried taxpayers with dependents who pay more than half the household expenses) can claim a deduction of up to $21,900. This is an increase of $1,100.
2023 and 2024 Standard Deductions Compared
|
Filing status |
2023 Standard Deductions |
2024 Standard Deductions |
|
Single |
$13,850.00 |
$14,600.00 |
|
Married, filing separately |
$13,850.00 |
$14,600.00 |
|
Married, filing jointly |
$27,700.00 |
$29,200.00 |
|
Head of household |
$20,800.00 |
$21,900.00 |
Source 2023: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023
Source 2024: https://www.irs.gov/irb/2023-48_IRB#REV-PROC-2023-34
3. Updates to Tax Credit and Deduction Amounts
Claiming the tax credits and deductions that are available to you is one of our top small business tax tips to optimize your tax bill. The IRS's business and individual credits and deductions pages list a range of options to consider for the 2024 tax year.
Standard Mileage Rate for 2024
The standard mileage rate for 2024 is 67 cents per mile, up from 65.5 cents per mile in 2023.
Commercial Clean Vehicle Credit
Businesses and tax-exempt organizations can claim a tax credit of up to $40,000 for the purchase of a commercial clean vehicle that is placed in service in 2024. Be aware that not every EV qualifies; check the list of specifications to ensure the electric vehicle you're considering is eligible for the credit.
Earned Income Tax Credit
Qualifying taxpayers (including gig workers and self-employed individuals) with a low to moderate income can reduce their tax liability using the Earned Income Tax Credit. Individuals who qualify for the credit can use it to lower their tax liability dollar for dollar and, in some circumstances, increase their tax refund. The income limits and credit amounts have changed for 2024.
Income Limits for the Earned Income Tax Credit for 2024
|
CHILDREN OR RELATIVES CLAIMED |
SINGLE, HEAD OF HOUSEHOLD, OR WIDOWED |
MARRIED FILING JOINTLY |
|
Zero |
$18,591 |
$25,511 |
|
One |
$49,084 |
$56,004 |
|
Two |
$55,768 |
$62,688 |
|
Three |
$59,899 |
$66,819 |
Investment income limit: No more than $11,600
Maximum credit amounts:
No qualifying children: $632
1 qualifying child: $4,213
2 qualifying children: $6,960
3 or more qualifying children: $7,830
The rules surrounding eligibility for the Earned Income Tax Credit can be confusing as there are some caveats that may qualify you (or disqualify you) from receiving it. Consult IRS advice on the topic and check in with a tax professional for additional guidance. The same goes if you plan to claim the Child Tax Credit for the 2024 tax year, as conditions apply.
4. Capital Gains Taxes
Changes to rules surrounding capital gains may also impact your tax liability for the 2024 tax year, especially if you plan to sell a business property. Capital gains taxes are levied on the sale of capital assets like real estate, stocks and bonds, and other valuable items like jewelry.
For the 2024 year, individual taxpayers won't pay any capital gains tax if their total taxable income is less than or equal to $47,025, up from $44,625 in 2023. Taxpayers with taxable incomes between $47,026 and $518,900 will be subject to a capital gains tax rate of 15%. Individuals with taxable incomes exceeding that will pay a 20% capital gains tax.
5. Gift Tax Exclusion
This change applies to individuals rather than businesses. However, it might affect you if you plan to give someone a significant gift this calendar year. For 2024, you can give up to $18,000 to friends or family members before incurring gift tax. This figure is $1,000 more than in the 2023 tax year.
Make Strategic Decisions Based on 2024 Tax Changes
Staying one step ahead of the changes for the 2024 calendar year allows you to make favorable decisions now. Growing businesses must protect their bottom lines and understanding how tax changes will impact them is a key part of this.
Educating yourself on changes that will impact your small business finances is vital, but it can be even more advantageous to work with a tax professional. Navigating the constantly evolving tax code takes time, and working with a tax professional who is abreast of the changes allows you to take advantage of their up-to-date knowledge while focusing on your business.
