Isn't That Rich Podcast

As 2024 unfolds, understanding the new tax laws is more crucial than ever for business owners. In a recent discussion with Matt Businaro, CFO of Farmers State Bank, we delved into the key updates and considerations that businesses should be aware of this year. Here's what you need to know to ensure your business is compliant and making the most of available deductions and credits.

Understanding Depreciation: A Key Tool for Managing Taxable Income

Depreciation continues to be one of the most effective ways for businesses to manage taxable income legally. Matt highlighted the importance of understanding the different methods of depreciation, particularly in light of the changes coming in 2024.

Bonus Depreciation: This year, bonus depreciation stands at 80%, down from 100% in previous years. This means businesses can immediately write off 80% of the cost of qualifying assets with a class life of 20 years or less. While this percentage will continue to decrease in the coming years, it remains a powerful tool for businesses looking to reduce taxable income quickly.

Section 179 Expensing: Small businesses have another valuable option with Section 179 expensing, which allows for the immediate write-off of up to $1.2 million in equipment and certain types of building improvements. However, it’s important to note that Section 179 deductions cannot create a tax loss for the business and are limited to active trades or businesses.

The Importance of Cost Segregation Studies for Real Estate Investments

If your business has invested in commercial real estate or is planning to do so, a cost segregation study can offer significant tax benefits. By involving an engineer to analyze the property, businesses can identify components of the building that qualify for faster depreciation. This can include certain fixtures, wiring, and plumbing that might otherwise be lumped into the 39-year depreciation period typical for real estate. Matt emphasized how these studies can provide substantial upfront tax savings and improve cash flow.

Maximizing Solar Panel Investments

For businesses looking to go green, investing in solar panels not only offers energy savings but also comes with tax benefits. In 2024, businesses can take advantage of credits and depreciation for solar panel installations. Unlike other credits, where you must reduce the depreciable basis of the asset by the full amount of the credit, solar panels require only a 50% reduction. This unique advantage allows businesses to still claim a significant depreciation deduction while benefiting from the energy savings and environmental impact of solar technology.

The Importance of Compliance with 1099 Reporting

One of the most common issues that can trip up small businesses is failing to comply with 1099 reporting requirements. Businesses are required to issue 1099 forms to any non-corporate vendor who provides services totaling $600 or more during the year. Matt advises getting a W-9 form from all new vendors before issuing payment to ensure you have the necessary information to file 1099s accurately. This practice can save headaches and potential penalties down the road.

Timing Your Deductions Wisely

Another critical aspect of tax planning for businesses is the timing of deductions. If your business has had a particularly good year, it may make sense to accelerate deductions into the current year to reduce taxable income. Conversely, if you expect next year to be stronger, it might be wise to defer expenses to take advantage of those deductions when they can have a greater impact.

New Pass-Through Entity Deduction: A Win for LLCs and S-Corps

A significant update for 2024 is the introduction of the Pass-Through Entity (PTE) deduction. This new federal deduction allows S-corporations, partnerships, and LLCs to pay state taxes on behalf of their owners, which can then be deducted on the business’s federal return. The owners also receive a credit for these taxes on their state return, often resulting in a refund. This change is a win-win-win for businesses, their owners, and the state, ensuring taxes are paid while providing substantial deductions and potential refunds.

The Bottom Line: Consult Your Tax Advisor

As always, Matt stressed the importance of consulting with your tax advisor before making any significant financial decisions. Whether you're considering a major purchase, planning to invest in new equipment, or simply looking to optimize your tax strategy for 2024, your tax advisor can help you navigate the complexities of the tax code and make decisions that will benefit your business in the long run.

Navigating the new tax landscape can be challenging, but with the right knowledge and expert guidance, your business can continue to thrive. Stay informed, plan ahead, and don’t hesitate to seek professional advice to make the most of the opportunities available under the new tax laws.