In 2024 and Beyond
Tax laws evolve constantly, with new regulations and adjustments that impact businesses of all sizes. For e-commerce entrepreneurs, staying updated on these changes is essential to manage compliance, optimize tax savings, and avoid unexpected liabilities. The latest changes in tax law for 2024 bring opportunities and potential challenges for online retailers and e-commerce business owners. Here’s a closer look at key new tax laws that could impact your e-commerce business this year and what you need to know to stay ahead.
1. Updates to Sales Tax Nexus Rules
Sales tax compliance has been a complex issue for e-commerce businesses, particularly after the 2018 South Dakota v. Wayfair decision that allowed states to impose sales tax on remote sellers. In 2024, additional states have updated their economic nexus thresholds, meaning that e-commerce businesses need to track sales volume carefully in each state.
What’s Changed?
- Threshold Adjustments: Some states have lowered their economic nexus thresholds, requiring businesses with lower sales volumes to register and collect sales tax.
- Increased Enforcement: States are increasing sales tax audits for e-commerce businesses, making compliance more critical.
AMZ Accountant’s Tip: Use a sales tax compliance tool, such as Avalara or TaxJar, to automatically track state thresholds and simplify tax collection across multiple jurisdictions.
2. Expanded Requirements for 1099-K Reporting
The IRS has increased oversight on payment platforms and is tightening 1099-K reporting requirements for online sellers. In 2024, third-party payment platforms like PayPal, Stripe, and eBay will issue 1099-K forms to sellers who meet a lower threshold of transactions.
What’s Changed?
- Lower Reporting Threshold: Now, payment platforms must issue a 1099-K to sellers with just $600 in gross sales across any number of transactions, down from the previous $20,000 threshold in some states.
- Increased Record-Keeping Needs: E-commerce business owners may need to maintain more detailed records to reconcile 1099-K reports with actual business income.
AMZ Accountant’s Tip: To avoid errors, work with your accountant to ensure you correctly categorize income received via third-party platforms, as under-reporting could trigger an IRS audit.
3. New Deductions for Digital Infrastructure and E-Commerce Software
Recognizing the growing reliance on digital platforms and tools, the IRS has introduced new guidance on deducting digital infrastructure costs. Expenses for cloud-based software, website maintenance, and other e-commerce-specific tools can now be classified more flexibly, allowing online businesses to maximize deductions.
What’s Changed?
- Deduction Eligibility: Investments in e-commerce infrastructure, including expenses for website development, software licenses, and cybersecurity measures, may now be eligible for accelerated depreciation.
- Increased Clarity on Software Costs: Expenses for essential tools like inventory management systems, CRM software, and marketing automation tools now have more specific guidance on full or partial deductibility.
AMZ Accountant’s Tip: Categorize software and digital expenses carefully. Work with a tax professional to ensure you’re capitalizing and depreciating these costs appropriately for maximum tax savings.
4. Increased Credit for Research and Development (R&D) for E-Commerce Innovation
The R&D tax credit, long available to technology and manufacturing industries, is increasingly being claimed by e-commerce companies as they innovate in platform functionality, logistics, and data security. In 2024, the IRS has expanded qualifying activities to include advancements in e-commerce technology, such as website functionality, user experience improvements, and software development.
What’s Changed?
- Broader Definition of R&D: Activities like developing proprietary e-commerce platforms, customizing inventory software, or enhancing cybersecurity measures now qualify for the R&D credit.
- Increased Credit Value: Businesses can claim up to 20% of eligible R&D expenses as a tax credit, offsetting income tax liabilities.
AMZ Accountant’s Tip: Document R&D activities throughout the year, tracking project expenses, labor hours, and objectives. This can simplify the R&D credit application and increase the chances of approval.
5. Updated Depreciation Rules for Equipment and Capital Investments
Depreciation rules for 2024 have been updated, especially regarding bonus depreciation and Section 179 deductions. These changes impact e-commerce businesses that invest in significant equipment or warehouse space.
What’s Changed?
- Bonus Depreciation Phase-Down: Bonus depreciation has reduced to 80% in 2024, down from 100% in previous years, affecting larger purchases.
- Section 179 Limits: The Section 179 expense limit has increased, allowing businesses to expense up to $1,160,000 of qualifying property in the year of purchase.
AMZ Accountant’s Tip: Plan equipment purchases early in the year to optimize depreciation benefits and ensure you can fully utilize Section 179 before any potential phase-downs in coming years.
6. New Energy Efficiency Credits for Warehouse and Office Spaces
If your e-commerce business operates a warehouse or office, the new Energy Efficient Commercial Buildings Deduction offers a deduction for making eco-friendly upgrades. Qualifying improvements include solar panel installations, efficient HVAC systems, and energy-saving lighting.
What’s Changed?
- Deduction for Energy Efficiency: The maximum deduction has increased, with qualifying upgrades potentially deducting up to $5 per square foot.
- Green Investment Credits: Businesses investing in renewable energy for their facilities may also qualify for additional tax credits, offsetting the cost of these improvements.
AMZ Accountant’s Tip: Consider any green upgrades planned for the year as potential tax-saving investments. Track all expenses and energy savings to claim the deduction accurately.
7. Changes to Health Insurance and Benefits Deductions for Small Businesses
In 2024, health insurance deductions for self-employed individuals and small business owners are seeing adjustments that could provide savings for e-commerce entrepreneurs. Additionally, qualified small business health reimbursement arrangements (QSEHRAs) have seen increased limits, giving more flexibility in offering employee health benefits.
What’s Changed?
- Higher Deduction Limits: Self-employed individuals can now deduct higher amounts for health insurance premiums, helping to reduce overall taxable income.
- QSEHRA Increase: The maximum reimbursement limit for QSEHRAs has increased, allowing businesses to contribute up to $5,850 for individual coverage and $11,800 for family coverage.
AMZ Accountant’s Tip: Evaluate health insurance options and consider offering a QSEHRA to reduce taxable income while attracting and retaining talent. Work with a benefits consultant to explore options that fit your business needs.
Preparing Your E-Commerce Business for These Changes
While the latest tax laws provide valuable opportunities, they can also add complexity to your tax planning process. Here are a few strategies to help you prepare:
- Stay Organized with Quarterly Reviews: Schedule regular check-ins with your tax advisor to monitor expenses, income, and potential liabilities.
- Automate Sales Tax Compliance: With states increasing enforcement, an automated tool can ensure you’re collecting the correct amount in each jurisdiction.
- Track Eligible Deductions Year-Round: From digital infrastructure to energy-efficient upgrades, keep a detailed record of qualifying expenses so you can maximize your deductions.
AMZ Accountant’s Tip: Proactive planning is key to staying compliant and minimizing tax liabilities. Schedule a year-end tax planning session with your advisor to review any last-minute adjustments or additional deductions.
Conclusion
Navigating new tax laws for e-commerce businesses can be challenging, but proactive planning and careful documentation can turn these updates into strategic advantages. From new sales tax thresholds to expanded digital deductions and R&D credits, the 2024 tax landscape offers plenty of opportunities for savings. At AMZ Accountant , we stay informed on the latest tax regulations to help our clients stay compliant and optimize their tax strategy. Reach out today to learn how we can help your business make the most of these changes in 2024 and beyond.