As small business owners, staying ahead of tax changes is crucial for financial planning and success. With 2024 underway, it’s time to prepare for significant tax changes that could impact your business in the coming years, particularly those stemming from the 2017 Tax Act.
Get Ready for Different Tax Rates
By the end of 2025, the tax rates for individuals will go back to what they were in 2017. The highest tax rate will go up to almost 39% from 37%. This is going to affect people who make more than $450,000 a year. To handle this, you might want to move some income to times when taxes are lower.
Standard Deduction Will Get Smaller
The standard deduction for married couples filing together (now around $26,000) will be cut in half by the end of 2025. This will also change things for single filers and could really change how much tax you owe.
The Qualified Business Income Deduction Is Ending
If you have a business like a partnership or S corporation, there’s a big change coming at the end of 2025. The 20% deduction for qualified business income won’t be available anymore. You’ll need to think about new ways to handle your taxes.
Bonus Depreciation Is Changing
Bonus depreciation has already started to decrease in 2023. You can now only deduct 80% right away on equipment, down from 100%. This will drop to 60% in 2024. If you’re planning to buy a lot of equipment, you might want to do it soon to get the most tax benefits.
Use the Work Opportunity Tax Credit While You Can
The Work Opportunity Tax Credit, which can be up to $9,600 for hiring certain employees, will end by 2025. Make the most of this for your hiring plans before it’s gone.
Deduct Student Loan Help for Employees
Right now, you can deduct up to $5,250 per employee for helping with student loans. This also ends in 2025, so it’s good to use this deduction while it’s still here.
Changes in R&D Expense Deductions
You can’t immediately deduct research and development expenses anymore. Now, you have to spread these costs over five years. This started last year, so you might need to change how you handle these expenses.
The Estate Tax Exemption Will Be Lower
By the end of 2025, the exemption for estate taxes will drop from about $12 million to $6-7 million. If you own a business, you should think about ways to plan for this, like setting up trusts.
Talk to Your Accountant
With all these changes coming up, it’s really important to talk to your accountant. Making a good plan can help you handle higher taxes and fewer deductions. The best way to deal with these changes is to stay informed and ready.
Keep an eye out for more updates and tips on these tax changes. By staying on top of them, you can keep your business financially stable and growing.