Small Business Tax Changes to Know in 2023

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As a small business owner, you know that running your business comes with many responsibilities. There’s always a lot on his plate, from tracking expenses and managing employees to implementing new strategies and utilizing the right resources. accounting program. And on top of all that, you need to stay up to date on ever-changing tax laws that can significantly affect your business. As we head into 2023, there are some important tax changes every small business owner should be aware of. Let’s take a closer look at what you need to know.

Bonus depreciation fading

From 2017 to 2022, business owners who made eligible equipment and property purchases could claim up to 100% of the additional depreciation of the asset in the same year the equipment or property was purchased. In other words, you could deduct the full purchase price instead of paying off a portion each year. However, unless Congress extends this provision, it will slowly disappear. In 2023, the additional depreciation drops to 80% and falls an additional 20% each following year.

New Deferred Form 1099-K

for him American Bailout Act of 2021, small business owners, and self-employed individuals who receive more than $600 from third-party digital platforms such as eBay, Etsy, Facebook Marketplace, etc., were required to report this income via Form 1099-K beginning in tax year 2022. However However, taxpayers and business owners rejected these changes, so it was postponed for one year. If this type of income applies to your business, you should expect to receive a Form 1099-K in 2024 for the 2023 tax year.

Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) has been extended through the end of 2025. The WOTC is a federal tax credit available to employers who hire people from specific groups who consistently face employment barriers, such as veterans , ex-convicts and people receiving government assistance. The amount of the credit can range from $1,200 to $9,600 per qualified employee, depending on the person hired and the number of hours worked. In addition to employing target groups, the WOTC can help you offset onboarding and training costs for new employees.

Modification with the Qualified Business Income (QBI) Deduction

The Qualified Business Income (QBI) deduction is a tax deduction that allows self-employed individuals and small business owners who meet certain criteria to deduct up to 20% of their qualified business income on their tax returns. . In 2022, total taxable income must have been less than $170,050 for individual filers or $340,100 for joint filers to qualify. However, in 2023, the qualifying limits increased to $182,100 for single filers and $364,200 for joint filers.

Increased section 179 deduction limit

The Section 179 tax deduction allows you to deduct the full amount of qualified equipment, such as computers, machinery, vehicles, etc., in the year you purchased it instead of depreciating the cost over time. In 2023, the deduction was increased from $1,080,000 to $1,160,000 of the first $2,890,000 of eligible equipment placed in service during the current fiscal year. Section 179 has also been expanded to include improvements to nonresidential property, such as security systems, HVAC systems, fire protection, and roofing.

Modified Credit for Upfront Retirement Plan Costs

If your business has 50 or fewer employees, the Section 45E tax credit allows you to claim a credit for 100% of the cost to start a retirement plan, up to $5,000. The credit for employer contributions is capped at $1,000 per employee. Ultimately, this credit can alleviate the costs of setting up a retirement plan for your employees.

If your business has 51 to 100 employees, the Section 45E credit, which previously covered 50% of the initial retirement plan costs, disappears entirely.

Green and energy efficient deductions

Signed into law in 2022, the Inflation Reduction Act provides many tax credits and business deductions. For example, this law increased the size of the Commercial Building Energy Efficiency Deduction, allowing you to claim a larger deduction per square foot for renovations if your projects qualify. Additionally, you can claim a tax credit in 2023 of up to $7,000 if you purchase electric or fuel cell electric vehicles for your business. The credit can go up to $40,000 for vehicles over 14,000 pounds.

Interest expense limitation rule

The interest expense limitation rule states that the amount of deductible business interest expense in a tax year cannot exceed the total of:

• Your business interest income for the tax year
• 30% of your adjusted taxable income (ATI) for the tax year
• Your Floor Plan Financing Interest Expense

This rule was temporarily suspended due to the pandemic, but is now active for 2023 and beyond.

Increased standard mileage rate

The standard mileage rate is an easy way to calculate the deduction for the use of the vehicle for your small business. By 2023, the standard mileage rate increased to 65.5 cents per mile, an increase of three cents from 2022.

Be Prepared for a Stronger IRS

The Cut Inflation Act includes approximately $80 billion in funding for the IRS over the next decade. Approximately $45.6 billion of this funding will go toward the costs of tax enforcement services, including hiring more employees. While this increase in employment may help the IRS provide better customer service and faster processing times, it could also lead to a slight increase in audits for small businesses.

Investing in full-service accounting software is one of the best ways to help defend your small business against an audit. Many services provide several beneficial features, including easy bill management, a receipt and expense trackerinventory Tracking, billing softwareand calculation of tax deduction. With the right accounting software, you can make small business tax planning a seamless experience.