Tax Season 2024: 7 Tips for Small Business Owners

11 March 2024 ExtensisHR8 minute read

Quick look: The onset of spring means more than just blooming flowers—it’s also officially tax season. From updated business meal expense deductions to changing Employee Retention Tax Credit legislation, here’s what small businesses need to know during tax season 2024 and how a professional employer organization (PEO) can help simplify it all.

Another tax season is here, and with it comes a new set of deadlines and potential financial implications for small- and medium-sized businesses (SMBs).

Below are some key business filing deadlines, according to the IRS:

Calendar-year C corporations must file their 2023 income tax return by April 15, 2024 (for C corporations in Maine and Massachusetts, the deadline is April 17, 2024).
Partnerships and S corporations reporting on a calendar year basis must file their 2023 income tax returns by March 15, 2024.
Limited liability companies (LLCs) with multiple members must file partnership returns unless they’ve elected to be taxed as corporations.
LLCs with one member file their return with the owner’s tax return, as do sole proprietorships.
Business owners must file their personal 2023 income tax returns by April 15, 2024 (again, in Maine and Massachusetts, the deadline is April 17, 2024).

Employers should check their states’ business tax return filing requirements; many states have the same filing deadlines as federal, but the deadlines could vary.

Additionally, organizations in federal disaster areas should note that the filing deadlines for both their business and personal income tax returns may be extended. An automatic 60-day filing extension for disaster victims exists, but the IRS may grant up to one year to file. Please refer to this detailed information from the IRS about filing extensions for disaster victims.

7 tax tips for small business owners in 2024

Every business has unique operations, goals, and challenges. As such, there is no one-size-fits-all solution for taxes. However, the below updates for tax year 2023 may impact many SMBs and may be helpful to remember during preparation and filing.

Note: This is not an exhaustive list of changes affecting SMBs this tax year. For more information, please refer to your accountant and/or tax experts.

1. Business meals

For calendar years 2021 and 2022, business owners were temporarily allowed to deduct the full cost of work-related meals and beverages at restaurants. However, that provision has expired.

For tax year 2023, deductions for business-related meals and beverages from restaurants have returned to 2020 levels, meaning they’re limited to 50% of the cost.

2. Standard mileage rates

Starting January 1, 2023, a new, higher standard mileage rate was enacted for business-related transportation. If you use your car for business purposes, you can deduct 65.5 cents per mile driven during the 2023 tax year, a 3-cent increase from the 2022 mid-year rate.

The rates for medical transportation or moving purposes for qualified active-duty members of the armed forces, as well as miles driven in service of charitable organizations, remain the same as in 2022, at 22 cents and 14 cents per mile, respectively.

3. Bonus depreciation

Implemented in 2017 as part of the Tax Cuts and Jobs Act (TCJA), bonus depreciation permits business owners to write off a large percentage of the cost of a qualified asset. To qualify, the asset must be depreciable with a recovery period of 20 years or less. This includes vehicles, furniture, manufacturing equipment, heavy machinery, computer software, water utility property, and qualified film, television, and live theatrical productions.

The TCJA authorized business owners to write off 100% of the costs of qualified assets placed in service between September 27, 2017, and January 1, 2023. However, property placed in service in 2023 will experience a bonus depreciation that will decrease by 20% each year, as follows:

2023: 80%
2024: 60%
2025: 40%
2026: 20%
2027: 0%

4. SECURE 2.0 Act tax credits

SECURE Act 2.0 aims to make it easier for American workers to contribute to their retirement savings plans and is designed to provide financial relief to small businesses that want to offer these critical benefits.

During tax season 2024, employers should brush up on SECURE Act 2.0’s tax credits for retirement plan administration costs, employer contribution costs, and military spouse plan participation:

Retirement plan administration costs

According to the Act, businesses with 50 or fewer employees receive a 100% tax credit for administration costs of new retirement plans, which is an increase from the previous 50% credit.

Eligible businesses with 51-100 employees are subject to the original SECURE Act provision, which provides a credit for 50% of administrative costs, capped annually at $5,000 per employer for three years.

Employer contribution costs

SECURE Act 2.0 declares that businesses with up to 100 employees may be eligible for a tax credit for employer contribution costs.

This credit caps at $1,000 per employee and phases down over five years from plan adoption, according to the below schedule:

Year 1: 100%
Year 2: 100%
Year 3: 75%
Year 4: 50%
Year 5: 25%

SMBs should note that for plans with 51–100 employees, the percentage for the applicable year is reduced by 2% for each employee more than 50. Additionally, the percentage is applied to the amount of employer contributions to determine the credit, which can be up to $1,000 per employee each year.

Military spouse plan participation

Another goal of SECURE Act 2.0 is to help military spouses participate in employer retirement plans faster and boost their families’ retirement savings with additional employer-funded contributions.

To do so, the Act enables businesses with less than 100 employees to earn tax credits if they provide the following to spouses of active-duty service members:

Immediate eligibility for plan participation (within two months of hire)
Eligibility for any matching or non-elective contribution that they would have been eligible for otherwise at 2 years of service
Immediate full vesting in all employer matching contributions

5. Qualified Commercial Clean Vehicle Credit

The transportation industry continues to pivot towards more efficient vehicles, and tax credits are available to businesses that utilize them.

According to the IRS, businesses can claim a Qualified Commercial Clean Vehicle Credit for purchasing and placing a “qualified commercial clean vehicle” in service during the taxable year. This vehicle must be used for business purposes.

A “qualified commercial clean vehicle” is defined as any vehicle of a character subject to the allowance for depreciation that is:

Made by a qualified manufacturer,
Acquired for use or lease by the taxpayer and not for resale,
Treated as a motor vehicle for purposes of title II of the Clean Air Act and is manufactured primarily for use on public streets, roads and highways (not including a vehicle operated exclusively on a rail or rails) or is mobile machinery as defined in § 4053(8) of the Code, and
Propelled to a significant extent by an electric motor which draws electricity from a battery that has a capacity of not less than 15 kilowatt hours (or, in the case of a vehicle that has a gross vehicle weight rating of less than 14,000 pounds, 7 kilowatt hours) and is capable of being recharged from an external source of electricity, or satisfies the requirements under §30B(b)(3)(A) and (B) of the Code for being a new qualified fuel cell motor vehicle.

The amount of the Qualified Commercial Clean Vehicle Credit is the lesser of 15% of the taxpayer’s tax basis in the vehicle (30% in the case of a vehicle not powered by a gasoline or diesel internal combustion engine), or the incremental cost of the vehicle.

Additionally, the credit is limited to $7,500 in the case of a vehicle that has a gross vehicle weight rating of less than 14,000 pounds, and $40,000 for all other vehicles.

6. Employee Retention Tax Credit (ERTC)

Notably, this tax year, there have been significant changes to the ERTC, with recent legislation potentially ending all ERTC claims for both 2020 and 2021 on January 31, 2024.

H.R. 7024, also known as the Tax Relief for American Families and Workers Act of 2024, which at the time this blog was written was passed by the House of Representatives and being reviewed by the Senate, would not allow Employee Retention Credit (ERC) claims to be submitted after January 31, 2024. Further, all improper claims would be subject to longer potential enforcement periods and steeper penalties.

H.R. 7024 also states that companies that charged a contingency fee for the processing of ERTCs or generated half or more of their gross revenue from ERTC claims would be declared “COVID-ERTC promoters” and subject to increased fines and penalties. Certified PEOs would be exempt from these provisions.

*Disclaimer: The Employee Retention Tax Credit legislation is constantly evolving. Please visit Congress.gov for the latest updates and news.

7. Remote workforce considerations

According to Forbes, nearly 13% of full-time U.S. employees work from home, and it’s predicted that by 2025, over 32 million will work remotely.

While this work environment has many advantages, employers should remain aware of the tax implications a multistate workforce can generate. When a business has workers in another state, this may create a nexus sufficient to require filing an income tax return and paying state and local taxes in that location.

Employers should check the income tax rules for all states where staff work remotely to determine if they have income tax obligations in those areas.

Tax season, simplified

Tax legislation changes year-round, and staying on the pulse of the updates can be taxing, for lack of a better term.

Navigating taxes (during tax season and beyond) becomes significantly more manageable for SMBs when they partner with a PEO. By handling tax management and filing, the tax experts at a PEO can help businesses confirm their compliance, maximize their credits, and avoid expensive back taxes.

For example, ExtensisHR, a nationally recognized PEO, has a team of tax and payroll professionals who help employers with:

Tax filing (federal, state, and local) and W-2 preparation
Payroll tax liability management
Dedicated payroll manager and payroll processing
Tax credit support
Employee records maintenance
And more

Discover how partnering with a PEO can streamline and simplify tax management for your business. Connect with our experts today to learn more.