5 Tax Changes Small Business Owners Need to Prepare For

Key tax issues for 2024

Here are some small business tax changes owners should be aware of and understand while preparing for tax season.

1. 100 percent business meals and entertainment deduction

If you have deductible meals and entertainment for your business — for example, if you travel overnight for business — you have historically only been able to deduct 50 percent of those expenses as a business expense. You can now deduct 100 percent of meal and entertainment expenses made in 2021 and 2022. 

If you use tax software, the program calculates your deduction automatically if you enter your expenses in the correct categories. It’s more essential than ever to file all your meal and entertainment deductions properly this year.

2. 1099-K reporting form changes delayed

The IRS announced previously that taxpayers would receive a form 1099-K from third-party settlement organizations if they received $600 or more in electronic transactions. The form is also sent to the IRS. Previously, taxpayers only received a 1099-K if they received $20,000 or more or 200 or more transactions. 

However, as of Dec. 23, 2022, the IRS announced a one-year transition period that amounts to a reprieve for now. The new reporting requirements now go into effect for the tax year 2023.

3. Qualified business income deduction

If you own a qualified small business, you may be able to deduct up to 20 percent of your business income. Certain income from dividends also qualifies. You must own a sole proprietorship, partnership, S corporation or one of several specific trusts and estates.

In 2023, you may qualify for the full deduction if:

• Your business income is less than $170,050 if you are single or file as head of household.
• Your business income is less than $340,100 if you are married taxpayers filing a joint return.

Your deduction is phased out completely if your business income is $207,500 or more filing as single or head of household or if it’s $415,000 or more filing jointly.

4. Section 179 deduction

The Section 179 deduction allows you to deduct up to the full expense for specific business expenditures in the year of purchase instead of spreading the deductions over the useful life of the expenditures using depreciation rules. Taking the Section 179 deduction is optional.

Your business can take a Section 179 deduction for up to $1,080,000 in 2023, with a “total equipment purchase” limit of $2.7 million. You can use the Section 179 deduction when purchasing either new or used equipment.

Consult your tax professional about your best strategy for using the Section 179 deduction.

5. Energy-efficient commercial buildings deduction

The energy-efficient commercial buildings deduction has been made permanent. It currently applies to owners of commercial and residential buildings with four or more stories who install energy-efficient commercial building properties. 

You must show a 50 percent reduction in energy or power costs, and you may qualify for a deduction of as much as 63 cents per square foot each for each of three main systems (HVAC and hot water, interior lighting and the building envelope), for a total maximum deduction of $1.88 per square foot.

Tips for getting ready for tax season

Business owners can use several tax preparation tips to make things easier when tax season rolls around. 

1. Keep up-to-date records. 

Ensure your records are up to date and your financial documents are organized and easily accessible for tax season, especially for any potential deductions. Excellent recordkeeping is crucial in the event of a tax audit. 

“Save everything,” advised Timothy Todd, certified public accountant (CPA) and assistant professor of law at Liberty University School of Law. “A lot of deductions require extra substantiation, such as meals, entertainment expenses and use of a personal vehicle. There’s been a spate of tax court cases lately that has disallowed business deductions due to lack of recordkeeping. If your business is audited, this is low-hanging fruit for the IRS to disallow.”

2. Use a trustworthy tax solution. 

Another smart tax prep move is to take advantage of technology that will make organization and recordkeeping easier for your small business. Jonathan Barsade, CEO of sales tax solutions provider Exactor, advised seeking a tax solution that is comprehensive, low maintenance and easy to use.

“Modern technologies can automate the entire [tax] process for the small business owner, from the point of calculating the taxes at the time of the transaction, through the final generating and filing of the tax returns,” Barsade explained. “There is no reason why a small business owner should spend any more than an hour each month on all of their tax compliance needs. The earlier the business owner proceeds toward automation, the less time they will need to work in tax season, which means more time remaining to focus on your business.” 

You may also want to consider hiring a CPA to handle your tax concerns all year.

3. Stay aware of financial news and tax changes.

Most importantly, keep finance and tax issues on your radar by following financial news and checking in regularly with your small business accountant or tax adviser.

Tax codes change frequently and it’s essential to stay on top of new regulations and adjustments to ensure you’re taking advantage of favorable laws and tax savings while mitigating your tax burden legally.

Tax planning is essential business planning

Even with a top-notch finance team and tax advisor, small business owners would do well to have a firm grasp of tax laws and how new tax issues can affect their businesses. Some tax reforms present favorable opportunities for small businesses, so be prepared to act quickly to help protect your business and set it up for success. 

Nicole Fallon contributed to the reporting and writing of this article. Some source interviews were conducted for a previous version of this article.