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Understanding the Latest Tax Law

Changes Affecting Small Businesses:

Insights from the IRS

Regulations and Compliance
Business and Financial Management
Tax Planning and Strategies

Staying updated on changes to tax laws is vital for small business owners to ensure compliance and take advantage of potential benefits. The IRS frequently updates regulations, reporting thresholds, and tax policies, directly impacting small business filings. Here’s an overview of the most important tax law changes for small businesses as outlined by the IRS, along with actionable steps to navigate them.

1. Third-Party Payment Reporting Threshold Changes

The IRS originally required third-party settlement organizations (e.g., PayPal, Venmo) to report transactions exceeding $600. However, the enforcement of this threshold has been delayed. For the 2024 tax year, third-party payment platforms must report transactions exceeding $5,000. Future thresholds may revert to $600 as the IRS phases in compliance.

Action Steps:

  • Keep Detailed Records: Ensure that all business transactions processed through third-party platforms are accurately recorded.
  • Prepare for Future Reporting: Start adapting your accounting practices to handle these reporting thresholds effectively.

Source: IRS Guidance on Form 1099-K Reporting

2. Tax Brackets and Standard Deduction Adjustments

The IRS adjusts tax brackets annually to account for inflation, affecting both individuals and businesses. For 2024, there are changes to marginal tax rates and an increased standard deduction, which may impact sole proprietors and pass-through entities.

Action Steps:

  • Review Withholding and Estimated Taxes: Recalculate your tax liability using updated brackets to avoid surprises.
  • Adjust Budgeting: Incorporate potential savings from higher deductions or plan for increased liabilities.

Source: IRS 2024 Tax Brackets and Rates

3. Employee Retention Credit (ERC) Updates

The IRS continues to provide guidance on the Employee Retention Credit, emphasizing compliance and accurate filing. Fraudulent claims have resulted in stricter scrutiny and delayed refunds.

Action Steps:

  • Confirm Eligibility: Only claim the ERC if your business meets the specific requirements for each quarter.
  • Maintain Documentation: Ensure you have thorough records to substantiate your claims, such as payroll reports and supporting documentation.

Source: IRS Updates on Employee Retention Credit

4. Bonus Depreciation Phase-Out

The Tax Cuts and Jobs Act allowed 100% bonus depreciation for qualified property placed in service through 2022. Starting in 2023, this percentage is gradually reducing by 20% each year, reaching 0% in 2027.

Action Steps:

  • Plan Capital Expenditures: If possible, make significant equipment or property purchases while bonus depreciation is still available.
  • Review Eligibility: Ensure assets qualify under IRS definitions for accelerated depreciation.

Source: IRS Depreciation Guidance

5. Changes to Net Operating Loss (NOL) Rules

The IRS limits the use of net operating losses to 80% of taxable income for most businesses. However, carrybacks may still apply in certain situations, depending on legislative provisions.

Action Steps:

  • Analyze Tax Strategies: Work with your CPA to determine whether carrying losses forward or backward maximizes your tax savings.
  • File Timely Claims: Ensure all NOL deductions are claimed within the required timeframe.

Source: IRS Net Operating Loss Guidelines

6. Corporate Transparency Act: Beneficial Ownership Information (BOI) Reports

Beginning January 1, 2024, small businesses must comply with the Corporate Transparency Act, requiring most entities to report beneficial ownership information to FinCEN. Non-compliance may lead to penalties.

Action Steps:

  • Determine Applicability: Verify if your business needs to file a BOI report.
  • File Early: Avoid penalties by submitting accurate information by the deadline.

Source: IRS and FinCEN BOI Reporting

How to Navigate These Changes

  1. Stay Informed: Regularly visit the IRS website for the latest updates, forms, and guidelines.
  2. Consult a CPA: Work with a tax professional to ensure compliance and optimize tax strategies for your business.
  3. Use IRS Tools: Leverage resources like the IRS Tax Calendar and online calculators to stay organized.

Understanding and adapting to the latest tax law changes is essential for small business success. Whether it’s complying with new reporting requirements, adjusting for tax bracket changes, or maximizing deductions, proactive planning can make a significant difference. For personalized assistance with tax planning and compliance, contact us today to ensure your business remains financially secure and IRS-compliant.

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