For the 2023 tax season, there are numerous new and pending changes to tax regulations and deductions that are crucial for small businesses. For instance, in recent years, there have been pandemic-related business assistance programs, the most of which are now coming to an end. High inflation has also occurred, which has necessitated changes for many tax-related items. Read this full blog to learn about the key tax issues for 2023:
Key tax issues for 2023
Here are some small business tax changes owners should be aware of and understand while preparing for tax season.
1. 100 percent business meals and entertainment deduction
If you have deductible meals and entertainment for your business ― for example, if you travel overnight for business ― you have historically only been able to deduct 50 percent of those expenses as a business expense. Now, all dining and entertainment costs incurred in 2021 and 2022 are fully deductible.
If you use tax software, if you enter your expenses into the appropriate categories, the program will automatically calculate your deduction. This year, it’s more important than ever to properly file all of your meal and entertainment deductions.
2. 1099-K reporting form changes delayed
The IRS stated that taxpayers who received $600 or more in electronic transactions would be sent a form 1099-K by third-party settlement entities. Additionally, the IRS receives the form. A 1099-K was previously only issued to taxpayers who had received $20,000 or more or 200 transactions.
However, as of Dec. 23, 2022, the IRS announced a one-year transition period that amounts to a reprieve for now. The new reporting requirements now go into effect for the tax year 2023.
3. Qualified business income deduction
You might be able to deduct up to 20% of your business income if you run a qualified small business. Also acceptable is a certain amount of dividend income. You have to be the owner of a sole proprietorship, partnership, S corporation, or one of several specific trusts or estates.
You might be eligible for the full deduction in 2023 if:
- Your business income is less than $170,050 if you are single or file as head of household.
- Your business income is less than $340,100 if you are married taxpayers filing a joint return.
Your deduction is phased out completely if your business income is $207,500 or more filing as single or head of household or if it’s $415,000 or more filing jointly.
4. Section 179 deduction
With the Section 179 deduction, you deduct the full cost of a number of business expenses in the year of purchase rather than distributing the cost over the expense’s useful life as determined by depreciation regulations. It is not required to use the Section 179 deduction.
The Section 179 deduction for your company is limited to $1,080,000 in 2023 with a $2.7 million “total equipment purchase” limit. The Section 179 deduction is available for both new and secondhand equipment purchases.
To determine your best course of action for utilizing the Section 179 deduction, speak with a tax expert.
5. Energy-efficient commercial buildings deduction
The deduction for business buildings that use less energy has been made permanent. It now applies to building owners that install energy-efficient commercial building properties in buildings with four floors or more, including commercial and residential.
For each of the three major systems (HVAC and hot water, interior lighting, and the building envelope), you may be eligible for a deduction of up to 63 cents per square foot, with a maximum deduction of $1.88 per square foot, provided that you can demonstrate a 50% reduction in energy or power costs.
Tips for getting ready for tax season
When tax season arrives, business owners can employ a few tax preparation tips to make things simpler.
1. Keep up-to-date records.
Make sure your financial records are up to date, organized, and readily available during tax season, especially for any potential deductions. For a tax audit, excellent recordkeeping is essential.
2. Use a trustworthy tax solution.
Utilizing technology to simplify organization and recordkeeping for your small business is another wise tax preparation decision. MCDA CCG, Inc recommends looking for a comprehensive, low-maintenance, and user-friendly tax solution.
You may also want to consider hiring a CPA to handle your tax concerns all year.
3. Stay aware of financial news and tax changes.
Most importantly, stay informed of financial news and consult with your small business accountant or tax advisor frequently to stay on top of financial and tax difficulties.
To make sure you’re taking advantage of beneficial legislation and tax savings while lawfully reducing your tax burden, it’s crucial to stay up to date on new regulations and revisions to tax codes.
Tax planning is essential business planning
Even with a top-notch finance staff and tax counsel, small business owners would be wise to have a solid understanding of tax laws and how emerging tax issues can influence their companies. Some tax reforms present favorable opportunities for small businesses, so be prepared to act quickly to help protect your business and set it up for success.
Contact MCDA CCG, Inc today with any questions about your business and the upcoming tax season!