Tax Time Tips for Entrepreneurs: Navigating 2024’s Small Business Tax Landscape
This week’s insight keeps on the tax-code theme (as the April 15 filing deadline looms!).
One of the best effects of the COVID-19 pandemic, precisely five years ago now, was an entrepreneurial spirit that swept America. The government tracks this via a metric called “high propensity business applications,” which is a code term for new business formation. After steadily rising at about the pace of overall economic activity during the 2010s, new-company filings soared starting in mid-2020.
While this past January’s growth was lower on an annual basis, small business appetite remains high among traditional 9-5ers, young folks, retired go-getters, and the broader gig workforce. Uncle Sam doesn’t make it easy on us small business owners, though. There are many important regulatory requirements and tax must-knows.
For 2024, individuals earning $400 or more from self-employment must file a tax return and pay self-employment (FICA) taxes, which cover both the employee and the employer portions of Social Security and Medicare taxes. That amounts to 15.3% up to the first $168,600 of gross income (though Medicare taxes are still owed above the Social Security limit). Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes. For tax year 2025, the 15.3% self-employment tax rate applies to the first $176,100 of self-employment income.
Gig workers are required to report all income, even if not documented on a 1099 tax form, and this includes cash received for small projects. It’s good practice to make quarterly estimated tax payments (and it is required in many cases) to avoid penalties—deadlines are April 15, June 15, September 15, and January 15.
But the IRS offers some relief for small business owners, and these breaks can apply whether you take payment under your SSN as a self-proprietor, own an LLC, or have a separate S-corporation. There’s the 20% Qualified Business Income Deduction, $1500 home office deduction, and the ability to write off vehicle mileage and business-related meals. Of course, there’s nuance to all these tax breaks, so working with a financial planner and/or CPA is advised.
Moreover, the IRS might step up its scrutiny on the growing number of small businesses—the threshold for 1099-K reporting could drop in the years ahead. So, if you take payment via Venmo, Cash App, Zelle, or PayPal, you might receive more 1099 forms come this time next year. It remains to be seen how recent IRS layoffs will impact planned changes—we’ll monitor the developments.
What won’t change much is the ability for self-employed workers to turbo-charge their retirement savings via plans like a SEP-IRA and Solo 401(k). These accounts feature higher contribution limits than, say, traditional IRAs, so you should definitely take advantage of them if possible.
No matter what you do, keeping meticulous records is a must for all entrepreneurs.
