Tax Changes for 2024: A Guide for the Self-Employed

U.S. tax laws are constantly evolving, shaped by regular inflation adjustments, shifting political administrations, and major societal developments, like COVID-19. As a result, keeping up with them is often challenging, and it can be especially challenging to know how to maximize your tax deductions.

With the year coming to a close, it’s a good time to catch up on the tax changes for 2024 that will affect the return you file in 2025. Here are the updates small business owners need to know about, including changes to reporting thresholds, tax brackets, and credit amounts.

1. 1099-K Reporting Threshold Changes

If you’ve been keeping up with the many IRS announcements regarding Form 1099-K in recent years, you know it’s been something of a roller coaster. If you haven’t, here’s a quick refresher.

Third-party settlement organizations (TPSOs) are platforms that facilitate payments between buyers and sellers. They include payment apps, like Venmo and Square, and online marketplaces, like Airbnb and Uber.

TPSOs must complete an annual Form 1099-K for each seller whose activities on their platform exceed certain thresholds. The document reports the total payments those sellers received for their products or services during the year.

Previously, you’d get a 1099-K if you completed at least 200 transactions and earned at least $20,000 on a TPSO. The IRS has been trying to eliminate the transaction requirement and lower the income threshold to $600 since 2022, but the changes have been delayed several times due to pushback from taxpayers and tax professionals.

So, where do the rules stand now? As a compromise, the IRS made 2024 a ‘phase-in year.’ The minimum transaction requirement has been eliminated, but the income threshold has only been reduced to $5,000. Currently, the plan is to lower the threshold to $2,500 in 2025 and $600 in 2026.

2. Income Tax Changes

Ordinary income taxes apply to both W-2 wages and net self-employment earnings. While the tax rates themselves haven’t changed since 2018, the IRS updates the brackets of income subject to them each year to keep up with inflation.

Here are the 2024 federal income tax brackets for single, head of household, and married filing jointly taxpayers:

3. Self-Employment Tax Changes

The self-employment tax rate is 15.3%, combining 12.4% for Social Security and 2.9% for Medicare. Like ordinary income tax rates, it hasn’t changed for several years, but the amount of income subject to the tax is updated annually for inflation.

In 2024, the first $168,600 of your combined wages and net self-employment earnings are subject to the Social Security portion of the tax, up from $160,200 in 2023. However, the Medicare portion of the tax applies to all your income.

4. Capital Gains Tax Changes

Capital gains tax applies to the profits you receive when selling a capital asset, such as stock, crypto, or business equipment. If you hold the asset for more than a year, the tax rate is discounted. Otherwise, it’s just the ordinary income tax rate.

If your sale qualifies for the discounted, ‘long-term’ capital gains tax, your tax rate depends on your total income. And–you guessed it–the income brackets were updated this year for inflation. Here are the capital gains tax changes for 2024:

4. Standard Deduction Changes

Individual taxpayers can choose either the standard deduction or itemized tax deductions to reduce their gross annual income. The Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction in 2017, and it increased again in 2024 to keep up with inflation.

Here are the 2023 and 2024 amounts for each filing status:

Keep in mind that the standard deduction is entirely separate from your tax deductions for business expenses. 

5. Mileage Deduction Changes

Many different types of freelance work involve driving a car, whether it’s delivering for DoorDash or meeting a client at their gym for a personal training session. You get to write off the vehicle expenses associated with your business, but accounting for them can be tricky.

There are a lot of details to keep track of, including gas, maintenance, depreciation, insurance, and more. And unless you drive your vehicle exclusively for work, you have to keep meticulous records to determine what percentage is deductible and what’s personal.

Alternatively, you can use the mileage deduction to claim a flat write-off for each business mile you drive, reducing the record-keeping burden. In 2024, that deduction went up to 67 cents per mile, up from 65.5 cents in 2023.

6. Changes to Retirement Account Contributions

Tax-advantaged accounts, like 401(k)s, let your investments grow tax-free or tax-deferred, which is highly beneficial for long-term savings. However, self-employed people often don’t have access to employer-sponsored plans or company matches.

That can make it challenging to set enough aside for retirement, and it becomes even more important that you contribute as much as you can each year to the self-employed retirement plans you do have access to, such as the:

• Independent retirement account (IRA)

• Simplified Employee Pension Plan (SEP IRA)

• Savings Incentive Match Plan for Employees (SIMPLE IRA)

• Solo 401(K)

Fortunately, the limits on annual contributions (which are often deductible) increased in 2024. Here are the new and previous year amounts:

In practice, additional limitations apply based on your annual earnings and your contributions in aggregate, which can make things tricky. For example, the employee portion of your contributions to all plans can’t exceed $23,000 in 2024.

Consider consulting a tax professional to help you optimize your annual contributions, especially as your income increases and you juggle more tax-advantaged accounts.

7. Qualified Business Income Threshold Changes

The Qualified Business Income (QBI) deduction is still available in 2024, allowing certain owners of sole proprietorships, partnerships, S Corporations, and LLCs to deduct up to 20% of their qualified business income from their taxable income.

In other words, many self-employed people can benefit from it, except for C Corp owners, and it can be highly lucrative. However, the QBI deduction can phase out when your income exceeds certain thresholds, which were updated in 2024 for inflation.

Here are the current and previous year thresholds:

Calculating the QBI deduction can be exceedingly complex, especially if your income crosses into the thresholds above. Consider hiring a Certified Public Accountant to help you navigate the rules.

8. Changes to Miscellaneous Credits and Exclusions

The IRS has also updated a variety of tax credits and exclusions for inflation in 2024 that may or may not apply to you. Here are some of the most notable changes impacting Earned Income Tax Credit, Foreign Earned Income Exclusion, Lifetime Estate Tax Exclusion, and Annual Gift Tax Exclusion.

Stay Ahead of Tax Changes Using Found

As a business owner, your taxes are generally more complicated than those of someone working a 9-to-5 job. Not only do your tax returns have more moving parts, but you also have to track your deductions and make quarterly estimated tax payments.

On top of running your day-to-day operations, that can be a tall order, especially as your business grows in size and complexity. That’s why we created Found. It’s designed to streamline your financial management, freeing you to focus more on strategic decisions.

For example, some of its most convenient features include:

• Dedicated business bank account to organize your bookkeeping

• Expense tracking software that categorizes costs and generates statements

• Customizable auto-save options to help you prepare for your quarterly tax payments

• Automatic Schedule C generation based on your tracked financial data

Create a Found account for free to simplify your finances, automate routine tasks, and get back to what you do best–growing your business.

The information on this website is not intended to provide, and should not be relied on for, tax advice.