There are numerous tax law changes for tax year 2023 affecting small businesses. One thing remains constant: the need to keep accurate records and work with a tax professional you trust.
David Levi, a certified public accountant and managing director of CBIZ, noted that many business owners give limited attention to keeping financial records. “And they do it themselves, and they do it at night over a cup of coffee while they’re watching TV,” he said in an article on NerdWallet.
“[But] you don’t know what you don’t know,” said Levi. “And the one thing that’s certain in the tax world is change.”
Most of the tax rules put into place during the COVID-19 pandemic are expiring this year or have already expired. Working with a certified public accountant (CPA) can help ensure that you comply with regulations and pay the right amount of taxes.
Here are some of the business-related tax law changes for 2023:
• Small start-up businesses can offset more R&D credits against payroll taxes. Starting in 2023, eligible firms can opt to claim up to $500,000 of qualified research expenses to offset payroll taxes. This election is for firms in business for not more than five years that have gross receipts of less than $5 million.
• Bonus depreciation isn’t as valuable in 2023. Last year, businesses could deduct the full cost of new and used qualifying business assets with a life of 20 years or less. However, for 2023, the 100% write-off falls to 80%.
• Expensing is higher. Assets up to $1,160,000 can be expensed in 2023. This phases out dollar for dollar once more than $2,890,000 of assets are put into use. The temporary 100 percent write-off for business meals has expired; starting this year, only 50 percent of the cost of most business meals is deductible.
• Increased credit for starting employee retirement plans. Businesses with up to 50 employees can now claim a tax credit for 100% – up from 50% – of the cost of starting a retirement plan, up to $5,000. You can also claim a credit for up to $1,000 in employer contributions to each employee’s plan.
• Electric vehicle credit. Businesses can claim a tax credit of up to $7,500 when they buy electric or fuel cell electric vehicles. For vehicles larger than 14,000 pounds, the credit can go up to $40,000.
• Employee health insurance expenses. Starting this year, the dollar amount of average wages is $30,700 ($28,700 in 2022) – the amount used for limiting the small employer health insurance credit and determining who is an eligible small employer for the credit.
• Work Opportunity Tax Credit extended. This credit, extended through 2025, is available for employers that hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.
• Tax benefits for pass-throughs and corporations. The tax reform law created a significant deduction for both pass-through and corporate entities. The law now provides a 20% deduction for those businesses.
Find out whether you can still claim the Employee Retention Tax Credit. It was meant to encourage business owners to keep staff during the COVID-19 pandemic. It applied only to wages paid before Oct. 1, 2021, so you cannot claim it on your 2022 tax return.
However, there is still time to amend your 2020 and 2021 returns to claim the credit, which was worth up to $7,000 per quarter per employee while it was in effect. You can generally amend tax returns within three years after filing your return.
You might qualify for the credit if your business was ordered to fully or partially close in 2020 or 2021, or if your revenue compared to 2019 decreased by more than 50% in 2020 or more than 20% in 2021.
“It’s probably one of the most powerful credits that I’ve seen in my 30 years with the (Internal Revenue) Service,” said Eric Hylton, national director of compliance for Alliantgroup, a tax consulting firm, and former IRS commissioner for the Small Business/Self-Employed Division. Talk to a tax professional about whether you qualify.
