business tax guide

Business Tax Guide: What to know for 2023

As 2023 kicks off, business owners need to read up on what’s new in business taxes. Tax changes occur frequently and can cause a major headache for business owners that aren’t up-to-date on the latest business tax changes.

If you’re preparing for tax season but aren’t caught up on what you’ll be facing this year, there’s no need to worry. Here’s a comprehensive guide on all the crucial business tax changes you should be aware of for 2023.

Bonus Depreciation

In 2023, businesses must prepare for bonus depreciation to begin fading. First-year bonus depreciation deductions were changed to 100 percent between mid-2017 and the end of 2022, meaning that business owners purchasing expensive equipment could claim 100 percent of the bonus depreciation on the asset.

Business owners will no longer be able to claim 100 percent of the bonus depreciation, which will begin to reduce annually starting in 2023. Assets placed in service after January 1, 2023, will phase downward in the years as follows:

  • 80 percent in 2023
  • 60 percent in 2024
  • 40 percent in 2025
  • 20 percent in 2026
  • 0 percent in 2027 and beyond

Preparing for this decrease is essential if your business relies on expensive equipment and bonus depreciation. You can avoid serious financial problems that jeopardize your business with proper preparation.

Section 179 Expensing

Businesses will still have access to the benefits provided under Section 179 expensing. While Section 179 expensing is similar to bonus depreciation, it remains available for upcoming tax years. However, Section 179 deductions are limited and require a phase-out of tax deductions beginning after qualified assets exceed a specific amount.

Standard Mileage Rates

The IRS has introduced new standard mileage rates for business travel after January 1, 2023. Mileage rates increased from 58.5 cents per mile for business purposes in the first half of 2022 and now fall to 65.5 cents per mile for business transportation. These changes are partially due to increasing fuel prices, modern fuel economy, and insurance costs.

Changes in standard mileage rates apply to small and medium-sized businesses and all automobiles, including diesel, gasoline, electric, and hybrid vehicles.

New Net Operating Rules

Another change for small businesses in 2023 involves guidelines surrounding net operating processes. Net operating losses occur when a company’s deductions exceed its gross income. Businesses can generally carry their losses to offset future income, though owners cannot offset taxable income beyond 80 percent.

In 2023, these guidelines are shifting. Any net operating losses gained in 2018, 2019, or 2020 being carried into the new business year are no longer subject to 80 percent of a business owner’s taxable income limit.

Business Income Deductions

During the 2023 tax year, small business owners can deduct up to 20 percent of their business income from specific sources, namely qualified domestic organizations and some dividends. However, businesses must meet a few requirements to qualify for this deduction and be within the threshold of $182,000 for single or head-of-household filers and $364,200 for married or joint filers.

Modified Credit for Pension Plan Costs

Small and medium-sized businesses should pay attention to the changes in credit for pension plan startups as the rules shift in 2023. Throughout the 2023 tax year, employer contribution credit cannot exceed $1,000 per employee. Additionally, the current guidelines state that total credit amounts are available to employers with 50 or fewer employees–anything exceeding this number will have the credit phased out completely.

Employee Retention Tax Credit

The Employee Retention Tax Credit was a policy developed to encourage business owners to maintain a team of employees during the initial stages of the COVID-19 pandemic and applied to wages paid before October 1, 2021. Because of this, business owners couldn’t claim this credit on 2022 tax returns.

However, business owners can amend their Employee Retention Tax Credit in 2023 to claim ERTC returns, as general tax return guidelines allow owners to amend their business tax returns within three years of the initial filing. Businesses that might qualify for the ERTC include the following:

  • Businesses ordered to fully or partially close between 2020-2021
  • Business owners whose revenue compared to 2019 revenue decreased by over 50 percent in 2020 or 20 percent in 2021.

Consider Starting an Employee Retirement Plan

Small business owners should consider initiating an employee retirement plan in 2023. Business tax changes have expanded to allow businesses with up to 50 employees to claim a 100 percent tax credit for the cost of starting a retirement plan. This includes up to $5,000 for the retirement plan and an additional $1,000 in employer contributions for individual employee plans.

What is a Certified Public Accountant?

While the multiple business tax changes coming in 2023 can be stressful for any business owner, there are resources to help navigate these changes and mitigate damage that could be caused otherwise. For instance, a certified public accountant (CPA) can help business owners navigate these changes expertly.

A CPA is a licensed accountant who helps businesses organize, plan, and achieve their financial goals. A certified public accountant can help small and medium-sized businesses thrive in numerous ways, such as the following:

  • Helping with financial analysis and planning
  • Ensuring that your accounting procedures comply with business tax changes and new government regulations
  • Helping you understand all of your financial statements
  • Providing guidance on estimated tax payments to make throughout the business year
  • Creating financial reports at the end of the business year
  • Submitting your business taxes and paperwork required by the IRS
  • Determining how your business can grow through key insights
  • Developing financial forecasts to stay prepared
  • Helping to prevent IRS tax audits

How Dempsey Vantrease & Follis Can Help

Having an experienced CPA is essential for small business owners navigating the various tax changes in 2023. Anyone uncertain about how to comply with these business tax changes or to seek guidance on their business taxes entirely can find everything they need from the CPAs at Dempsey Vantrease & Follis.

Dempsey Vantrease & Follis goes beyond essential tax preparation and works with clients to develop comprehensive plans to minimize federal and state taxes. From business entity tax planning to reviewing tax implications in contractual agreements, Dempsey Vantrease & Follis are prepared to help your organization thrive and remain IRS-compliant. Contact us today to find the best solution for your business taxes in 2023.