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Small Businesses Tax Breaks – As a small business owner, you have several opportunities to reduce your tax liability in 2024. Understanding the tax breaks available to you can help you keep more of your hard-earned profits. From operational expenses to credits for hiring and energy-efficient upgrades, there are many ways to lower your taxable income. In this blog, we’ll cover some of the top tax breaks for small businesses and how you can take full advantage of them.
The Section 179 deduction allows small businesses to deduct the full purchase price of qualifying equipment and software in the year they are bought, rather than depreciating the costs over several years. This deduction applies to a wide range of assets, including computers, office furniture, machinery, and vehicles.
For 2024, the Section 179 limit is $1.16 million, with a phase-out threshold of $2.89 million. This means you can deduct up to $1.16 million in equipment purchases, but once your total purchases exceed $2.89 million, the deduction begins to decrease.
Tip: Ensure the items you purchase are used for business purposes more than 50% of the time to qualify for this deduction.
Bonus depreciation allows businesses to take a large deduction on qualified property in the first year it is placed in service. In 2024, businesses can deduct 80% of the cost of qualifying property in the year it is purchased. The percentage will continue to decrease in subsequent years, so taking advantage of this now can save you money.
Bonus depreciation applies to new and used property, including machinery, equipment, and certain business vehicles.
Tip: Keep in mind that bonus depreciation applies to assets with a useful life of 20 years or less. Consult your tax advisor to determine which assets qualify.
One of the most valuable tax breaks for small businesses is the Qualified Business Income (QBI) deduction, which allows owners of pass-through entities (like sole proprietorships, partnerships, S corporations, and LLCs) to deduct up to 20% of their qualified business income. This deduction is available to businesses earning less than $170,050 for single filers and $340,100 for married couples filing jointly (for 2024).
The QBI deduction is subject to various limits and qualifications, so it’s essential to work with a tax professional to ensure you meet the criteria and maximize your deduction.
Tip: Keep detailed records of your business income and expenses to ensure you’re maximizing your QBI deduction. A tax professional can help you navigate the complexities of the deduction.
The Employee Retention Credit (ERC) was introduced as part of COVID-19 relief measures but is still relevant for businesses in 2024. If you retained employees during the pandemic, you may be eligible for a credit of up to $26,000 per employee.
While the credit is no longer available for 2024 wages, it may still apply to wages paid in prior years. If you didn’t claim the ERC earlier, you may still be able to file an amended return and receive the credit retroactively.
Tip: If your business retained employees during the pandemic, check if you qualify for the ERC. Work with a tax advisor to determine eligibility and ensure you claim the credit.
If you’re a small business owner who provides health insurance to yourself or your employees, you may be able to deduct premiums as a business expense. Self-employed individuals can deduct 100% of their health insurance premiums for themselves, their spouses, and dependents from their taxable income. This deduction applies whether you purchase insurance through the marketplace or via an employer-provided plan.
Tip: For self-employed individuals, this deduction is taken “above the line,” meaning it reduces your taxable income without needing to itemize.
The Research and Development (R&D) Tax Credit rewards small businesses for investing in innovation. If your business develops new products, processes, or software, you may qualify for a credit based on your research activities. In 2024, small businesses can claim up to $250,000 of their R&D expenses against payroll taxes.
This credit is available to businesses in a variety of industries, including manufacturing, tech, and engineering.
Tip: To claim the R&D credit, you must be able to document your research and development activities. Consult with a tax advisor to ensure you’re meeting the eligibility requirements.
The Small Business Health Care Tax Credit helps small businesses provide health insurance to their employees. If your business has fewer than 25 full-time employees and provides health insurance through the Small Business Health Options Program (SHOP), you may be eligible for a credit of up to 50% of the premiums you pay.
This credit is available to businesses that offer coverage to employees with average wages below a certain threshold.
Tip: Make sure your business meets the eligibility criteria for the SHOP program to take advantage of this credit.
If your business makes energy-efficient upgrades to your building, you may qualify for the Energy Efficient Commercial Buildings Deduction (Section 179D). This allows businesses to deduct up to $1.88 per square foot of energy-efficient improvements made to their commercial building, including improvements to HVAC systems, lighting, and insulation.
This deduction can provide substantial savings for businesses that invest in energy-efficient upgrades.
Tip: Keep detailed records of all energy-efficient improvements made to your property to ensure you claim the full deduction.
Navigating the world of tax breaks can be complex, but understanding and claiming these deductions and credits can significantly reduce your small business’s tax liability. Whether it’s through equipment deductions, research credits, or health insurance premiums, there are plenty of opportunities to save money in 2024.
To ensure you’re taking full advantage of every available tax break, work with an experienced tax professional. Metro Accounting and Tax Services, CPA is here to help you identify the best strategies for your business and maximize your savings. Our experts specialize in helping small businesses navigate complex tax laws and claim all available credits and deductions.
Contact us today at Metro Accounting and Tax Services, CPA to schedule a no cost consultation and start saving on your taxes in 2025 and beyond!
User | 31/12/2024