The landscape of tax regulations is constantly evolving, and 2024 is no exception. The IRS has introduced several changes that small business owners need to be aware of to ensure compliance and optimize their tax strategies. Understanding these new regulations is crucial for staying on the right side of the law while maximizing your tax savings. In this blog, we'll explore the most significant changes in IRS regulations for 2024 and provide actionable advice on how small business owners can adapt.
1. Increased Reporting Requirements for Digital Payments
One of the most impactful changes for 2024 is the increased reporting requirements for digital payment platforms. The IRS has reduced the threshold for reporting payments received through third-party payment processors like PayPal, Venmo, and Square.
New Threshold: Starting in 2024, the threshold for reporting transactions has been reduced from $20,000 to $600. This means that if your business receives more than $600 through these platforms in a year, you will receive a Form 1099-K, and the IRS will be notified.
Impact on Small Businesses: Small business owners who use these platforms for payments must now ensure they are accurately reporting all income, including smaller transactions that might have previously gone unreported.
Actionable Advice: Keep meticulous records of all transactions made through digital payment platforms. Consider using accounting software that integrates with these platforms to automatically track and report income.
2. Changes to the Qualified Business Income (QBI) Deduction
The Qualified Business Income (QBI) deduction, introduced under the Tax Cuts and Jobs Act, allows eligible small business owners to deduct up to 20% of their qualified business income. However, changes in income thresholds and calculation methods have been introduced for 2024.
Adjusted Income Thresholds: The income thresholds for claiming the full QBI deduction have been adjusted for inflation. For 2024, the threshold is $182,100 for single filers and $364,200 for joint filers. If your income exceeds these amounts, the deduction may be limited or phased out, depending on your business type and income level.
Impact on Specified Service Trades or Businesses (SSTBs): Businesses in fields such as health, law, accounting, and consulting (considered SSTBs) face stricter limits on claiming the QBI deduction if their income exceeds the threshold.
Actionable Advice: Work with a tax professional to evaluate how the changes to the QBI deduction might affect your tax liability. Consider strategies such as income splitting or retirement plan contributions to keep your taxable income within the threshold.
3. New Requirements for Reporting Cryptocurrency Transactions
With the rise in cryptocurrency usage, the IRS has tightened regulations around reporting transactions involving digital assets. In 2024, all businesses dealing with cryptocurrencies must adhere to new reporting requirements.
Mandatory Reporting: Businesses that receive cryptocurrency payments must report these transactions as income. The IRS now requires detailed reporting of all cryptocurrency transactions, including sales, exchanges, and even gifts.
Valuation at the Time of Transaction: Cryptocurrency must be reported at its fair market value at the time of the transaction, which can be challenging given the volatility of digital assets.
Actionable Advice: Implement a robust system for tracking and valuing cryptocurrency transactions. Consider consulting a CPA with experience in cryptocurrency to ensure compliance and accurate reporting.
4. Updated Depreciation Rules for Business Assets
The IRS has introduced changes to depreciation rules that could impact how small businesses write off the cost of certain assets. In 2024, there are updates to both Section 179 and bonus depreciation.
Section 179 Changes: The maximum deduction limit under Section 179 has been increased to $1,080,000, with a phase-out threshold of $2,700,000. This allows small businesses to deduct the full cost of qualifying equipment and software purchased during the year.
Bonus Depreciation Phase-Out: The 100% bonus depreciation rate is being reduced by 20% per year starting in 2024. This means that businesses can now deduct 80% of the cost of qualifying assets in the first year, with the remaining 20% depreciated over subsequent years.
Actionable Advice: Plan your capital expenditures strategically to maximize your depreciation deductions. If possible, accelerate purchases of qualifying assets to take advantage of the higher bonus depreciation rate before it phases out.
5. New Rules for the Employee Retention Credit (ERC)
The Employee Retention Credit (ERC) has been a valuable relief measure for businesses affected by the COVID-19 pandemic. However, 2024 brings changes to the eligibility criteria and the calculation of the credit.
Eligibility Adjustments: The eligibility criteria for claiming the ERC have been tightened. Businesses must now demonstrate a significant decline in gross receipts or a full or partial suspension of operations due to government orders.
Credit Calculation: The maximum credit amount has been reduced, and the method for calculating eligible wages has been modified. Businesses must carefully review their payroll records to ensure they are claiming the correct amount.
Actionable Advice: Review your business's eligibility for the ERC under the new rules. If you previously claimed the credit, consult with a tax advisor to determine if any adjustments are necessary based on the updated regulations.
6. Expanded Eligibility for the Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) provides incentives for businesses to hire individuals from targeted groups, such as veterans, ex-felons, and long-term unemployed individuals. For 2024, the IRS has expanded eligibility criteria for this credit.
New Targeted Groups: The IRS has added new categories of individuals who qualify as targeted groups, making it easier for businesses to claim the WOTC.
Credit Amount: The credit amount remains substantial, offering up to $9,600 per eligible employee, depending on the targeted group and the employee's hours worked.
Actionable Advice: Review your hiring practices to identify opportunities for claiming the WOTC. Make sure to complete the necessary paperwork, including IRS Form 8850, within the required time frame to qualify for the credit.
7. Increased Scrutiny on Cash Transactions
The IRS has ramped up its focus on cash-intensive businesses, such as restaurants, retail stores, and service providers. In 2024, the IRS is expected to increase audits and enforcement actions related to underreported income from cash transactions.
Reporting Requirements: Businesses that receive more than $10,000 in cash in a single transaction or in related transactions must file IRS Form 8300 to report the cash payment. Failure to report cash transactions can result in substantial penalties.
Actionable Advice: Implement strong internal controls to accurately track and report all cash transactions. Ensure that your business complies with Form 8300 reporting requirements to avoid penalties.
8. Increased Penalties for Late Filings and Inaccurate Returns
The IRS has increased penalties for late filings and inaccurate returns in 2024. Small businesses must be diligent in meeting filing deadlines and ensuring that their tax returns are accurate and complete.
Late Filing Penalties: The penalty for filing late has increased to 5% of the unpaid tax per month, up to a maximum of 25% of the unpaid tax.
Accuracy-Related Penalties: The penalty for underpayment due to negligence or substantial understatement of income tax is 20% of the underpaid amount.
Actionable Advice: Ensure that your tax filings are accurate and timely. Consider using tax software or working with a CPA to minimize the risk of errors and missed deadlines.
Conclusion
Navigating the new IRS regulations in 2024 requires careful planning and attention to detail. Small business owners must stay informed about these changes and adapt their tax strategies accordingly to remain compliant while maximizing their tax savings. At Accuwise, we are committed to helping small businesses succeed by providing expert tax planning and accounting services tailored to your needs. Contact us today to learn more about how we can support your business in the upcoming tax year.
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