Tax rules change frequently, and it goes without saying that there are a myriad of regulations governing an extensive array of business deductions. We are touching on a few key categories and highlighting a handful of changes for 2024. However, it is essential that you partner with trusted tax professionals to determine specifically what does and does not apply to your law practice.
Travel
Each year, the IRS issues standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes. As of Jan. 1, 2024, the standard mileage rates for the use of owned or leased passenger cars, vans, pickups or panel trucks are as follows:
- 67 cents per mile driven for business use, up 1.5 cents from 2023.
- 21 cents per mile driven for medical or moving purposes, a decrease of 1 cent from 2023. (Taxpayers cannot claim a deduction for moving expenses unless they are members of the Armed Forces on active duty.)
- 14 cents per mile driven in service of charitable organizations (the rate is set by statute and remains unchanged from 2023.)
Note that these rates apply to electric and hybrid-electric automobiles as well as gasoline and diesel-powered vehicles.
Meals and Entertainment
Tax deductions have long made meals and entertainment an invaluable tool for business development as well as for employee recruiting and retention. But today, figuring out exactly what deductions your practice can and cannot take for business meals and entertainment can be a daunting task. Understanding what is fully deductible, 50% deductible, and not deductible at all generally comes down to 1) the purpose of the meal/event, and 2) who benefits from it.
For 2024, the deduction for both customer and employee business meals is 50%. This is a significant change from the previous 100% deduction for business meals in and from restaurants, which was applicable during 2021 and 2022 (this temporary deduction was intended to boost the restaurant industry during the COVID pandemic.)
In addition, many business-generating entertainment deductions have been eliminated by the Tax Cuts and Jobs Act, such as the expenses associated with playing golf or attending a theater performance with customers and prospects.
Some employee meal and entertainment costs can still be deducted 100%, such as:
- Year-end/holiday parties for employees and spouses
- Employee award or incentive trips
- Team-building recreational events for all employees
That said, there are countless requirements and exceptions for determining if a meal expense is tax-free, ranging from who furnishes it and where it’s consumed to the reasons for providing it. For example, meals intended to promote morale or goodwill, or to attract prospective employees, are considered furnished for a compensatory business reason. Such meals do not qualify for tax-free treatment unless a substantial non-compensatory business reason is also present
Retirement Plans
The 2024 limits for most (but not all) qualified retirement plans have increased over last year. These include:
- Pre-tax contributions for 401(k) and SEP plans, as well as 403(b) annuities, which are $23,000 compared to $22,5000 in 2023.
- The annual benefit ceiling for Sec. 415(b)(1)(A) defined benefit plans, which is $275,000 (up from $265,000); and combined employer/employee pay-in limits for all defined contribution plans, which rose from $66,000 to $69,000 in 2024.
- The IRA catch-up contribution limits to retirement plans for people aged 50 and over were unchanged.
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