Yahoo Finance Tax Season 2024: 5 Changes That Small Business Owners Need To Know
If you run a small business, particularly one that has employees and offers benefits such as a workplace retirement plan, then recent tax changes could affect you this tax filing season.
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By keeping up with tax changes, you can potentially find legal ways to lower your tax liability while staying compliant, like when it comes to reporting requirements.
The specific changes that affect your company can depend on factors such as your business structure and size, but in general, some of the more notable tax changes that small business owners should be aware of this year include the following. The first three are already law, while the last two are potential changes that could still affect this tax filing season.
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Increased Employer Pension Startup Credit
The SECURE Act 2.0 introduced several new retirement-related tax changes, one of them being an increased tax credit for small businesses that offer retirement plans.
Starting with tax year 2023, “the small employer pension startup credit is increasing from 50% of administrative costs to 100% for the first three years for those employers with up to 50 employees,” explained Hector Castaneda, principal at Castaneda CPA & Associates, PS.
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Increased Employer Retirement Contribution Credit
In addition to tax credits for starting retirement plans, small business owners may be eligible for tax credits based on making contributions to employee retirement accounts.
“An additional credit equal to a percentage of the amount contributed by an employer — with under 101 employees — on behalf of its employees is available,” Castaneda said, “with a maximum limitation of $1,000 per employee, provided that the plan is a defined contribution plan.”
Be sure to confirm the specific percentages that apply to your situation.
Student Loan Payments Counting as Elective Deferrals
This one is a bit more complicated, but basically the SECURE Act 2.0 gives employers an incentive to make student loan payments on behalf of employees.
“To assist employees who may be unable to save for retirement due to obligations to repay student loan debt, SECURE 2.0 permits such employees to receive matching contributions by reason of repaying their student loans,” Castaneda said.
While there are some nuances that you should be aware of, he said, “If you’re a business owner looking to find additional deductions, this may be a great opportunity for you and your employees.”
Extended 100% Bonus Depreciation
One potential new tax change, which hasn’t been signed into law yet, could affect the speed at which employers can depreciate assets, which affects tax liability.
“Yes, 2023 is over, and the tax filing season is already underway, but that doesn’t mean the tax laws can’t shift. Small business owners especially need to be aware of potential big changes ahead,” said Tom Wheelwright, a CPA and CEO of WealthAbility.
That includes the bipartisan Tax Relief for American Workers and Families Act, which was passed in the House on Jan. 31, 2024, and would be retroactive if signed into law soon, explained Wheelwright.
“One of the biggest business benefits — especially for real estate investors — in the 2017 Tax Cuts and Jobs Act was 100% bonus depreciation,” he said. “However, that legislation included a gradual phase-out of this tax incentive, starting with a drop to 80% in 2023. The House version of the Tax Relief for American Workers and Families Act extends 100% bonus depreciation through 2025.”
Expanded Research and Development Deductions
If this new bill becomes law, it could retroactively increase tax deductions related to R&D expenses.
“The act allows businesses to deduct the full cost of investments in U.S. research and development instead of spreading it over several years,” Wheelwright explained. “These tax incentives would be great for many small business owners, if they become law.
“The problem is that the legislation is stalled in the Senate even as the April 15 tax deadline is ticking, so taxpayers don’t really know what the rules are when it comes to their 2023 taxes.”
While that might make your tax filing confusing this year, it’s important to plan ahead.
“Small business owners should work closely with their tax advisors on a strategy,” Wheelwright said. “If either of these incentives — or any of the act’s other provisions — would impact your taxes, you want to be prepared.
“Depending on your circumstances, you may want to prepare your tax return but hold off on filing until the legislative questions are settled. You also could plan to file an extension, giving you until Oct. 15 to file your return. Just remember that an extension only gives you more time to file; you still need to pay the taxes you’ll owe by April 15 or face penalties and interest.”
Lastly, Wheelwright pointed out that this new act could also remove some tax advantages.
“The Tax Relief for American Workers and Families Act isn’t all potential good news for small business owners,” he said. “One of the ways the legislation pays for the new tax incentives is by limiting the Employee Retention Tax Credit to those that were claimed by Jan. 31, 2024. If it passes with this provision, it is already too late to file a claim. If it doesn’t pass, there still isn’t much time; businesses need to file before April 30 to avoid losing any of their 2020 benefits.”
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This article originally appeared on GOBankingRates.com: Tax Season 2024: 5 Changes That Small Business Owners Need To Know
