Small Business Taxes: What to Expect in 2024

By Sally Herigstad
Business News Daily | Updated Oct 24, 2023

As a small business owner, it’s important to stay up to date on tax laws. Several changes to the federal tax code will affect small businesses this tax year. Read this guide to find out the most important things to know about filing taxes next year.

Tax changes for 2024

The following changes are in effect for the 2023 tax year, which you prepare and file in 2024.

Modified credit for pension plan startup costs

The SECURE Act increases the Section 45E credit for all or a portion of employer contributions to small employer pensions for the first five employer tax years, starting in 2023. The credit for employer contributions is capped at $1,000 per employee. The full credit is available to employers with 50 or fewer employees and is phased out completely for employers with more than 100 employees.

Net operating rules

The rules around how to claim a net operating loss are changing this year. A net operating loss occurs when your deductions exceed your gross income. As a general rule, you can carry the loss forward to offset income in later years. You cannot offset more than 80% of your taxable income.

However, a net operating loss generated in 2018, 2019 or 2020 that you are carrying forward is not subject to the 80-percent-of-taxable-income limit. For net operating losses generated after 2020, the 80-percent-of-taxable-income limitations again apply.

Excess business-loss limitation rules

Through a temporary suspension of Tax Cuts and Jobs Act rules in 2019 and 2020, businesses could carry net operating losses back five years or carry them forward indefinitely. However, the suspension has ended. Taxpayers cannot deduct losses of more than $540,000 per year if married filing jointly or $270,000 if single. This applies to all business income and losses, including Schedule C and pass-through-entity income and losses. You can carry forward losses in excess of these amounts to lower your taxable income in future years.

In addition, W-2 wages can no longer be used to offset the business losses. Spousal income is taxed separately and may result in a tax bill even if the business losses are greater than the spousal income.

Interest expense limitation rule

The interest expense limitation rule generally limits the amount of deductible interest expense for the year to the total of the following:

1. Business interest income for the year
2. 30 percent of adjusted taxable income
3. Your floor plan financing interest expense

This tax rule was temporarily suspended during the pandemic, but it is back in force in 2022 and beyond…[MORE]

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To read the entire article by Sally Herigstad at the Business News Daily website, visit: Small Business Taxes: What to Expect in 2024