2024 has been a year of significant change for small businesses, driven by new provisions and emerging technologies that are altering the way industries operate. As we enter the final quarter of 2024, small businesses should prepare for even more change.
During the inaugural CO—100 Small Business Forum, Jeanette Mulvey, VP and Editor-in-Chief of CO—, sat down with Neil Bradley, EVP, Chief Policy Officer, and Head of Strategic Advocacy at the U.S. Chamber of Commerce, to discuss these expected changes and the state of small business today.
Inflation and tax changes small business owners should know about
Since May 2023, wages have been growing faster than inflation, which has declined by 2.5% year-over-year, according to Bradley. This shift contrasts with the unprecedented levels that the nation has been experiencing, causing financial challenges for many small businesses and consumers.
While wage growth offered some relief, looming deadlines could bring new challenges for small businesses if Congress and the Administration cannot agree on the tax code. Tax provisions from 2017 are set to expire on December 31, 2025, which would cause an unsustainable increase in the top marginal tax rate for small businesses.
“If you're an S corp, LLC, or a sole proprietorship ... your top marginal federal tax rate will go from 29.6% to 39%,” Bradley explained. “We're increasing it by more than a third overnight.”
In addition, Bradley notes changes to additional provisions like the R&D credits and capital investments are also predicted to phase out.
“We have about a $4.5 trillion tax cliff that's going to hit,” Bradley noted.
[Read more: Tax Credits Small Businesses Don't Know They Qualify For]
In addition to potential tax hikes, new filing provisions are set to take effect next year. This will require small business owners to report beneficial ownership to the federal government by January 1, 2025, or face penalties.
How the Federal Reserve is changing labor market regulations
In addition to potential tax hikes, new filing provisions are set to take effect next year. This will require small business owners to report beneficial ownership to the federal government by January 1, 2025, or face penalties.
“If you have equity in the business of 25% or more, [are] the CEO, or … have direct authority over the business, you have to register with the federal government,” Bradley explained.
[Read more: How to File a Beneficial Ownership Report for Your Small Business]
The Federal Reserve is expected to continue cutting interest rates, which can help small businesses obtain loans in the long run — though lending conditions likely won’t improve immediately.
“To beat inflation, [the Federal Reserve was] ramping up [federal funds] pretty considerably and pretty quickly,” Bradley said. “We just had … a half-a-point cut in the interest rate. We do have two additional meetings [and] expect quarter-point cuts at a minimum going forward, and we'll have some more cuts into next year.”
Despite potential rate cuts, small businesses continue to face financial strain, particularly with pandemic-era EIDL loans, which have been challenging to repay. There haven’t been any major changes to loan forgiveness.
AI’s continued impact on the economy and job market
The tight labor market of recent years has eased slightly, partially due to demographic changes like baby boomers’ retirement. Technological advancements like AI have also impacted the market.
Bradley acknowledged that AI will inevitably lead to workforce displacement. He believes it’s up to elected officials to focus on retraining displaced workers with skills needed for emerging jobs, rather than resisting technological advancement.
“My biggest fear is if public policymakers … come in and say … ‘We just want to keep the jobs that people have now ... and we will prevent … this automation from displacing people,’” Bradley said. “All that means is that we're just going to become really … inefficient and our economy is not going to grow.”
While the federal government has yet to implement legislation around AI, some states like Colorado and California are considering their own regulations, which could ultimately impact small businesses’ AI usage.
“To date, a lot of the activity has been at the local level [or] the state level,” Bradley said. “It's really more applicable to the folks who are designing AI, but it would limit some of your ability to use it. We expect a lot of legislation in both red and blue states when legislative sessions pick up in January.”
[Read more: A Small Business Guide to AI]
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