Section 179 Deduction
01/19/2025
2024 Tax Year Updates for Businesses
Tax laws change every year, and staying updated is crucial for business success. The 2024 tax year brings updates to deductions, depreciation, and retirement plans. Understanding these changes can help optimize your tax strategy and maximize your savings. Let’s explore the key tax updates for businesses in 2024.
Section 179 Deduction
The Section 179 deduction allows businesses to immediately deduct the full purchase price of qualifying equipment and software. As part of the 2024 tax updates for businesses, the deduction limit has increased to $1,220,000, with the phaseout threshold set at $3,050,000. Note that the deduction limit for SUVs is $30,500 for 2024.
Example: You purchased a machine for $3,100,000 in 2024. The machine’s cost is $50,000 more than $3,050,000. As a result, your Section 179 deduction will be $1,170,000 ($1,220,000 – $50,000).
Bonus Depreciation
Bonus depreciation is an additional first-year depreciation deduction. It deducts a large percentage of the asset’s cost in the first year the business places it in service. For 2024, the bonus depreciation rate decreases to 60%. Further, bonus depreciation decreases by 20% annually until it completely phases out by 2027. Also, assets eligible for the deduction include computers, office furniture, and software.
Note that the combined limit of Section 179 and bonus depreciation for luxury cars for 2024 is $20,400. Additionally, bonus depreciation is taken after Section 179.
Small Employer Health Insurance Credit
Businesses that provide health care coverage to their employees may be eligible for the Small Employer Health Insurance Credit. The credit limit increases to $32,400 for 2024. To qualify, businesses must:
- Have fewer than 25 full-time equivalent employees.
- Pay average wages of less than $65,000.
- Offer a qualified health plan to employees through the Small Business Health Options Program (SHOP) Marketplace (or qualify for a limited exception to this requirement).
- Pay at least 50% of the cost of employee-only health plans (not including family or dependent costs).
- Offer SHOP coverage to all full-time employees.
Also, the credit is 50% of premiums paid. Furthermore, the credit cannot exceed certain payroll taxes (Federal tax withholdings, Medicare tax withholdings, and Medicare tax employer’s portion).
Qualified Small Employer Health Reimbursement
As an alternative to offering a group health insurance plan, businesses can choose the Qualified Small Employer Health Reimbursement arrangement. This arrangement allows employers to reimburse their employees for individual insurance premiums and medical expenses on a pre-tax basis. Starting in 2024, the reimbursements for any year cannot exceed $6,150 ($12,450 for family coverage).
Small Balance Cash-Outs
Another 2024 tax year update involves changes under the SECURE 2.0 Act of 2022. Employers can transfer a former employee’s 401(k) account to an IRA if the balance does not exceed $7,000, an increase from the previous $5,000 limit. Additionally, SECURE 2.0 allows IRAs to be transferred into the participant’s new employer plan.
New Emergency Savings Account
Starting in 2024, SECURE 2.0 enables employers to offer non-highly compensated employees emergency savings accounts (ESAs). These accounts are linked to employer-sponsored retirement plans and are capped at $2,500. Additionally, employees must fund the ESA with Roth contributions. However, employers cannot contribute to the ESA. For withdrawals, participants can withdraw from the ESA at least once per month, and the first four withdrawals per year cannot be subject to fees.
Matching Contributions for Student Loan Payments
Beginning in 2024 as well, SECURE 2.0 permits employers to make matching contributions to a qualified retirement plan for an employee’s student loan payments. Specifically, qualified student loan payments (QSLPs) cannot exceed the annual deferral limit for that year minus any elective deferrals made during the year. For 2024, the contribution limit for 401(k)s is $23,000 or $30,500 if 50 or older.
Form 1099K Reporting
Form 1099-K reports payments from third-party payment networks like PayPal or Venmo. Previously, the IRS delayed the $600 reporting threshold for 2023 but is now implementing a phased-in approach. For 2024, the threshold is $5,000. Then, this amount will decrease to $2,500 for 2025 and drop to $600 for 2026.
Preparing Your Business for Success
The 2024 tax updates present both challenges and opportunities for businesses. Staying informed about changes like Section 179 limits, bonus depreciation, and Form 1099-K thresholds can help optimize your tax strategy. Take the time to review these updates and consult DuPage Tax Solutions to ensure your business is fully prepared.
References
Publication 334 (2024), Tax Guide for Small Business | Internal Revenue Service. https://www.irs.gov/publications/p334#en_US_2024_publink1000313325
Small Business health care tax credit and the SHOP Marketplace | Internal Revenue service. https://www.irs.gov/affordable-care-act/employers/small-business-health-care-tax-credit-and-the-shop-marketplace
S Corporation compensation and medical insurance issues | Internal Revenue Service. https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues
Understanding your Form 1099-K | Internal Revenue Service. https://www.irs.gov/businesses/understanding-your-form-1099-k
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