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Key 2024 Inflation-Adjusted Tax Amounts for Small Business Owners

The IRS recently announced various inflation-adjusted federal income tax amounts. Here’s a rundown of the amounts that are most likely to affect small businesses and their owners.


Rates and Brackets

If you run your business as a sole proprietorship or pass-through business entity (LLC, partnership or S corporation), the business’s net ordinary income from operations is passed through to you and reported on your personal Form 1040. You then pay the individual federal income tax rates on that income.


Here are the 2024 inflation adjusted bracket thresholds.

SINGLES

MARRIED JOINT FILERS

HEAD OF HOUSEHOLD

10% TAX BRACKET

$0 to $11,600

​$0 to $23,200

$0 to $16,550

12% TAX BRACKET

$11,601 to $47,150

$23,201 to $94,300

​$16,551 to $63,100

22% TAX BRACKET

$47,151 to $100,525

$94,301 to $201,050

$63,101 to $100,500

24% TAX BRACKET

$100,526 to $191,950

$201,051 to $383,900

$100,501 to $191,950

32% TAX BRACKET

$191,951 to $243,725

$383,901 to $487,450

$191,951 to $243,700

35% TAX BRACKET

$243,726 to $609,350

$487,451 to $731,200

$243,701 to $609,350

37% TAX BRACKET

$609,351

$731,201

$609,351

Key Point: These thresholds are about 5.4% higher than for 2023. That means that, other things being equal, you can have about 5.4% more ordinary business income next year without owing more to the government.


Section 1231 Gains and Qualified Dividends

If you run your business as a sole proprietorship or a pass-through entity, and the business sells assets, you may have Section 1231 gains to include on your personal Form 1040. Sec. 1231 gains are long-term gains from selling business assets that were held for more than one year, and they’re generally taxed at the same lower federal rates that apply to garden-variety long-term capital gains (LTCGs), such as stock sale gains.


Here are the 2024 inflation-adjusted bracket thresholds that will generally apply to Sec. 1231 gains recognized by individual taxpayers.

SINGLES

MARRIED JOINT FILERS

HEAD OF HOUSEHOLD

0% TAX BRACKET

$0 to $47,025

$0 to $94,050

$0 to $63,000

15% TAX BRACKET

$47,026 to $518,900

$94,051 to $583,750

$63,001 to $551,350

20% TAX BRACKET

$518,901

$583,751

$551,351

If you run your business as a C corporation, and the company pays you qualified dividends, they’re taxed at the lower LTCG rates. So, the 2024 rate brackets for qualified dividends paid to individual taxpayers will be the same as above.


Self-Employment Tax

If you operate your business as a sole proprietorship or as a pass-through entity, you probably have net self-employment (SE) income that must be reported on your personal Form 1040 to calculate your SE tax liability. For 2024, the maximum 15.3% SE tax rate will apply to the first $166,800 of net SE income (up from $160,200 for 2023).


Section 179 Deductions

For tax years beginning in 2024, small businesses can potentially write off up to $1,220,000 of qualified asset additions in year one (up from $1,160,000 for 2023). However, the maximum deduction amount begins to be phased out once qualified asset additions exceed $3,050,000 (up from $2,890,000 for 2023). Various limitations apply to Sec. 179 deductions.


Key Point: Under the first-year bonus depreciation break, you can deduct up to 60% of the cost of qualified asset additions placed in service in calendar year 2024. For 2023, you can deduct up to 80%.



 

Discussed are only the 2024 inflation-adjusted amounts that are most likely to affect small businesses and their owners. There are others that may potentially apply, including:

  • limits on qualified business income deductions and business loss deductions

  • income limits on various favorable exceptions such as the right to use cash-method accounting

  • limits on how much you can contribute to your self-employed or company-sponsored tax-favored retirement account

  • limits on tax-free transportation allowances for employees, and

  • limits on tax-free adoption assistance for employees

For any questions as to how your small business will be affectected, contact us at vaas@vaasprofessionals.com.

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