February 27, 2024

Tax Law Changes for 2024 – What Business Owners Need to Know

This year will bring major tax law changes that affect everyone from small retail shops and manufacturers to global enterprise companies, along with new sales tax trends that could significantly change your business operations.

This 2024 Tax Changes: What Business Owners Need to Know guide does not contain every forthcoming change, but does shed light on some key trends.

1. The Tax Cut and Jobs Act (TCJA)

The Tax Cuts and Jobs Act (TCJA) reduced individual, corporate, and estate tax rates. For businesses, this meant lowering the top corporate rate from 35 percent to 21 percent while also making changes that affected pass-through income deductions and international tax rules.

Specifically, this law established a 20 percent deduction for certain pass-through business income and created a base erosion and antiabuse tax (BEAT) which targets transfer pricing between US subsidiaries. Furthermore, state and local taxes, home mortgage interest, and miscellaneous expenses became less deductible.

These changes increase business tax burdens during an environment of economic downturn and uncertainty, and provide larger tax cuts for high-income households in terms of both dollars and share of their incomes. Cancelling the TCJA’s business tax increases would raise after-tax income by roughly $650 billion on an ordinary basis; dynamic analysis shows a reduced impact due to permanent 100 percent bonus depreciation and cancellation of R&D amortization amortization fading effects.

2. The Inflation Reduction Act

The Inflation Reduction Act has already produced significant results for families. Healthcare costs are decreasing, Medicare drug cost increases have been limited to $35 a month for millions of seniors and the tax code has become fairer as the IRS cracks down on wealthy tax cheats while improving customer service for law-abiding taxpayers.

2024 will see an increase in many popular deductions and credits, such as the standard deduction, retirement savings limit, home mortgage interest rate caps, state and local tax deduction caps and exclusions, gift and estate taxes exclusions and more. Furthermore, Texas’ PTET (pass-through entity tax) will double and become elective rather than mandatory, making compliance with new federal limits on state and local taxes simpler for businesses.

Statewide, twelve states are cutting individual tax rates and consolidating brackets while another is moving to a flat tax system. Your Anchin Relationship Partner can discuss how these state rule changes might impact your business and suggest planning opportunities.

3. The Tax Cuts and Jobs Act (TCJA) Phase-Outs

TCJA dramatically simplified business taxes and simplified the tax code, but many of its new rules will expire by 2025. Individual income tax rates will revert to their pre-TCJA levels; personal exemptions will expire; and limitations on itemized deductions and state and local tax deductions will reappear.

Other provisions of the Tax Cuts and Job Act will also gradually expire, such as 100 percent bonus depreciation (commonly known as full expensing) for five years, a two-year cap on net business interest expense and an inflation-adjusted NOL carryforward limit of 80% of taxable income. Furthermore, in 2023 the gross receipts test that determines whether small businesses can utilize cash accounting instead of inventory accounting will return.

Contrary to popular opinion, aggregate evidence through 2019 indicates that the Tax Cuts and Jobs Act’s business proposals did not produce substantial supply-side incentives for investment, hiring, or formation. We examine their design as well as ways they may be modified.

4. The Tax Cuts and Jobs Act (TCJA) Annual Inflation Adjustments

The Tax Cuts and Jobs Act (TCJA) reduces individual, corporate and estate tax rates while increasing standard deductions and lowering top pass-through income rates to 21%; bonus depreciation has also been implemented as part of these changes. It will be important for you to remain up-to-date as they become law.

Additionally, the Tax Cuts and Jobs Act will introduce annual inflation adjustments that could significantly alter your filings in 2019. As this adjustment represents one of the largest annual inflationary adjustments ever seen before, it would be wise to familiarise yourself with these rules prior to filing next year.

The Tax Cuts and Jobs Act will limit individuals’ ability to deduct state and local taxes, which may disproportionately impact those in states with high property and income tax rates. However, this provision will sunset at the end of 2025. TCJA business provisions have shown increases in economic output, capital stock, wages and employment – so it is essential that business understand the changes associated with it so they can plan effectively to protect their bottom lines.