For many small business owners, the new year signals the start of tax season preparation. The filing deadline for tax year 2024 is April 15, 2025, which means now is the time to start organizing your financial statements and looking for ways to reduce your annual tax bill.
In addition to planning for typical business tax deductions like payroll expenses, advertising costs, and charitable contributions, business owners will want to read up on some of the tax changes on the docket for this year. Here's a brief overview of what small business owners should know about planning for the upcoming tax season.
2024 tax year: Take advantage of these deductions and credits
Your business may be eligible for several tax deductions and credits. However, many of these longstanding tax breaks changed in the 2023 tax season, with these adjustments carrying into the 2024 tax year. Pay attention to the latest IRS guidance in each case, as it may change again before you file your taxes.
Credits and deductions for small businesses in 2024 include:
- Section 179: To support small-to-medium-sized businesses, Section 179 incentivizes operational improvements and helps cut overhead costs. The 2022 tax year was the final year businesses could deduct 100% of qualified expenses, as the 100% allowance began its decrease by 20% per year in taxable years after 2022 until January 1, 2027. This means that for tax year 2024, the maximum deduction is 60%; in tax year 2025, this will drop to 40%, and so on.
- Child and Dependent Care Tax Credit (CDCTC): The CDCTC — not to be confused with the child tax credit — helps cover the cost of qualified care expenses for children under 13, a spouse or parent unable to care for themselves, and other dependents. The credit allows working parents and caregivers to claim between 20% and 35% of care expenses, with the exact percentage depending on their adjusted gross income. The $3,000 maximum per person ($6,000 for two or more people) remains in effect from 2023, and there is currently no income limit to claim the CDCTC.
- Qualifying business meals and entertainment: The business meals tax credit was adjusted during the COVID-19 pandemic to encourage the support of restaurants, allowing businesses to temporarily deduct 100% of business meal expenses. For 2023, deductions reverted to their pre-2021 state and remain this way for 2024. Most business meals, including those provided during in-office meetings, conferences, and business travel, are still 50% deductible. Certain meals, including food for recreational employee events and customers or the general public, are 100% deductible. Entertainment expenses of all kinds continue to be nondeductible.
- Mortgage interest tax deduction: Effective 2023, mortgage insurance premiums are no longer treated as deductible mortgage interest; this remains in place for 2024. Businesses with property or brick-and-mortar locations can still deduct mortgage interest outside of their premiums. Publication 936 provides further guidance on the rules for deducting mortgage interest.
- Research credit: The Credit for Increasing Research Activities, also known as the research and development (R&D) tax credit, offers a dollar-for-dollar credit for qualified business development activities. As of the 2023 tax year, and continuing into the 2024 tax year, eligible small businesses can apply up to $500,000 of R&D credits. If you’re planning to leverage this credit, make sure you’re using the most current IRS Form 6765 — a proposed updated version was released in August 2024 with different reporting requirements. (As of November 2024, this remains a draft document and is not yet in effect.)
Beyond changes to federal taxes, many states have implemented changes for the 2024 tax year that may affect small business owners’ state-level taxes. Reading the most current guidance from your state’s Department of Revenue or taxing authority, as well as consulting with a local tax professional, can help you maximize your deductions and credits.
[Read more: 9 Commonly Overlooked Small Business Tax Credits]
Most business meals, including those provided during in-office meetings, conferences, and business travel, are still 50% deductible.
How tax inflation adjustments will impact taxes in 2024 and beyond
The IRS’s annual inflation adjustments for tax year 2024 will impact several tax provisions. For one, the standard deduction — one of the most common deductions — has increased to $14,600 for single taxpayers and $29,200 for married couples filing jointly.
Depending on your company’s structure and where you conduct business, you may benefit from these adjusted tax provisions:
- The Inflation Reduction Act of 2022 led to multiple changes in tax laws, scheduled to roll out over the course of 10 years. In 2024, the U.S. Department of the Treasury released an updated guide on energy-related tax incentives and rebates for small businesses; relevant additions include the Commercial Clean Vehicle Credit and the Energy-Efficient Commercial Building Deduction.
- Companies that are pass-through entities qualify for the Section 199A deduction for qualified business income (QBI) and can deduct 20% of their business income. QBI deduction limits have also increased to $191,950 for individuals and $383,900 for couples filing jointly.
- Small businesses that work internationally may benefit from the increase in foreign-earned income exclusion — $126,500 in tax year 2024 as compared to $120,000 in 2023.
- Retirement and health savings account plans have increased their contribution limits for the 2024 tax year. The limitation for salary contributions to health-related flexible spending arrangements increased to $3,200, while employee contribution limits for 401(k) plans increased to $23,000.
- If your business gives gifts, note the annual exclusion has increased to $18,000 for the 2024 calendar year — an increase from $17,000 in the previous calendar year.
If any of these circumstances apply to your business, make a note to discuss them with your certified public accountant or tax preparer so you can maximize your deductions and savings for your 2024 tax filings.
[Read more: How Do Charitable Donations Impact Your Taxes?]
Planned changes for tax year 2024
In October 2024, the IRS announced several inflation-related adjustments for the 2024 tax year, including changes to income tax brackets and standard deductions.
The income threshold for each bracket — which shows how much a taxpayer owes on each portion of their taxable income — has risen, with the top rate of 37% applying to single filers with a taxable income over $626,351 ($751,601 for married couples filing jointly). The standard deduction for tax year 2024 will increase to $15,000 for single filers ($30,000 for married couples filing jointly).
Additionally, the following tax credits are expected to expire in 2025:
- New Markets Tax Credit (NMTC): The NMTC Program incentivizes private entities to invest in economically disadvantaged and distressed communities. This credit is currently slated to expire at the end of 2025, though bipartisan legislation has been proposed to make the NMTC permanent.
- Employer credit for paid family and medical leave: This credit, originally initiated in the 2017 tax revision and previously extended through 2020, was once again extended through 2025. It can currently be claimed for all wages paid between the tax years 2018 and 2025.
- Work Opportunity Tax Credit (WOTC) The WOTC is available to employers that hire workers from targeted groups facing barriers to employment, including veterans, the previously incarcerated, and long-term recipients of family assistance or unemployment.
Keep in mind that the incoming Trump administration may affect these policies and expiration dates, so it’s always a good idea to stay up to date on anticipated tax changes so you and your business can plan accordingly.
[Read more: 10 Smart Small Business Tax Strategies That Will Save You Money]
Rachel Barton also contributed to this article.
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