Key Tax Changes 2023 and Deadlines for Small Business Owners

As a small business owner, keeping up with tax changes 2023 and deadlines is crucial to avoid any potential penalties or fines. In 2023, there are a few key tax changes to keep in mind, such as the increase in the standard mileage rate for business travel and changes to the tax brackets and income thresholds.

Additionally, it's important to be aware of the various tax deadlines throughout the year, including quarterly estimated tax payments and the deadline for filing corporate tax returns. By staying up-to-date on these changes and deadlines, small business owners can ensure they are in compliance with the latest tax regulations and avoid any unnecessary financial burdens.

The U.S. tax code is an extraordinarily complex body of law that’s spread across nearly 7,000 pages. To further complicate things, it’s essentially a living document that gets revised and amended every year. To put it simply, taxes are complicated and without a dedicated accounting expert on your side, it can be near impossible to stay on top of all the changes. Small business owners have enough on their plates without having to track the numerous tax law changes that occur every year.

2023 is no exception when it comes to tax changes, especially for small business owners. Here are the key tax changes and deadlines in 2023 to note as you prepare your 2022 taxes and plan for the year ahead.

Important Tax Changes in 2023

Increased Standard Mileage Rate

The standard mileage rate for business miles increased to 65.5 cents per mile in 2023 (a 3-cent increase from the second half of 2022.)

Section 179 Expensing

The Section 179 expense deduction increases to a max deduction of $1,160,000 of the first $2,890,000 of qualifying equipment placed in service during the current tax year. The deduction has been expanded to include improvements to nonresidential property such as fire protection, alarm and security systems, HVAC systems, and roofs.

Qualified Business Income (QBI) Deduction Modification

The Qualified Business Income Deduction (QBID) allows businesses that meet certain criteria to deduct up to 20% of their qualified business income on their tax returns. The 2023 modification increases the threshold for qualification to $182,100 for single and head-of-household tax filers and $364,200 for married filing jointly taxpayers.

Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) has been extended through December 31, 2025. The WOTC provides a tax credit to businesses that hire individuals from certain target groups, such as veterans, ex-felons, and individuals who receive government assistance.

The credit amount ranges from $1,200 to $9,600 per qualified employee, depending on the target group and the number of hours worked. Not only does this tax credit help reduce unemployment rates for individuals who face barriers to employment, but it also helps to offset the costs associated with onboarding and training new employees.

Bonus Depreciation Fade Out

From 2017 to 2022, business owners who purchased equipment could claim up to 100% of the asset’s bonus depreciation in the same year they bought the equipment. However, unless Congress extends this, the bonus depreciation will drop to 80% then an additional 20% for each subsequent year.

Be Prepared for a More Robust IRS

The Inflation Reduction Act of 2022 allocated a historic $46 billion to the IRS — much of which is earmarked for the hiring of as many as 87,000 additional IRS agents.

With an army of auditors at its disposal, it’s very possible that small business owners could see an increase in audits — not exactly welcome news for entrepreneurs and the middle class.

The best way to defend your business against an audit is to trust an accounting expert to handle your taxes.

FAQs

How Much Should a Business Owner Put Away for Taxes?

How much a small business owner should put away for taxes depends on a number of factors such as:

  • Type of business
  • Income level
  • Tax bracket

A good rule of thumb is to set aside at least 25% of income to pay for state and federal taxes.

Is the IRS focusing its attention on small businesses?

With the IRS’s increased budget, the agency’s ability to focus more attention on small businesses has been greatly amplified. Tax compliance and enforcement are two areas that the IRS will be able to pay extra attention to; unfortunately, small businesses typically have fewer resources at their disposal, making them more susceptible to tax mistakes.

The IRS even has a Small Business/Self-Employed Division dedicated to addressing the needs of small businesses and self-employed folks. However, this division also has the time and resources to identify noncompliance and tax fraud as well.

What Triggers an IRS Audit for Small Business Owners?

There are several factors that can trigger an IRS audit. A few common examples are underreporting income, unusually large deductions, home office deductions, cash transactions, unusually large charitable deductions, and noncompliance with payroll.

Partner with a tax professional to ensure you’re compliant

Bookkeeping Pro services accounting and tax professionals can help small business owners maintain tax compliance, even in the face of a constantly changing tax code. Tax laws and regulations are notoriously difficult to keep track of, and it’s a challenge for many small business owners to keep up with these changes while also maintaining their daily operations.

Working with the pros at Bookkeeping Pro services can help small business owners navigate the complexities of the tax code, provide guidance on tax filings, and help maximize tax credits and deductions.

Navigating Small Business Taxes in 2023: Key Changes and Deadlines to Know

The U.S. tax code is infamously complex, with nearly 7,000 pages of laws and regulations that are constantly evolving. As a small business owner, it can be overwhelming to keep up with the changes, especially when tax compliance is crucial to the success of your business. With the arrival of 2023, there are important tax changes and deadlines that you need to be aware of as you prepare your 2022 taxes and plan for the year ahead. In this article, we will outline these key changes and provide insights on how to stay compliant and maximize tax benefits for your small business.

Increased Standard Mileage Rate

One of the significant changes for 2023 is the increase in the standard mileage rate for business miles. The rate has gone up to 65.5 cents per mile. Which is a 3-cent increase from the second half of 2022. This rate is used to calculate deductible mileage expenses for business-related travel. Such as driving to meet clients, attending business conferences, or making deliveries. Keeping accurate records of your business mileage and using the updated standard mileage rate can help you maximize your tax deductions and reduce your taxable income.

Section 179 Expensing

The Section 179 expense deduction is another important tax change for small business owners to be aware of in 2023. This deduction allows businesses to deduct the cost of qualifying equipment placed in service during the current tax year. Rather than depreciating the cost over several years.

In 2023, the maximum deduction has increased to $1,160,000 for the first $2,890,000 of qualifying equipment. Providing small businesses with an opportunity to offset their taxable income and lower their tax bill.

Furthermore, the Section 179 expensing has been expanded to include improvements to the non-residential property. Such as fire protection, alarm and security systems, HVAC systems, and roofs. This can be a significant tax benefit for small business owners who invest in improvements to their business property.

Qualified Business Income (QBI) Deduction Modification

The Qualified Business Income Deduction (QBID) is a valuable tax deduction for small businesses. That pass-through income to their owners, such as sole proprietorships, partnerships, S corporations, and some LLCs.

The deduction allows eligible businesses to deduct up to 20% of their qualified business income on their tax returns. Which can result in substantial tax savings. In 2023, there is a modification to the QBI deduction threshold. The qualification threshold has increased to $182,100 for single and head-of-household tax filers, and $364,200 for married filing jointly taxpayers.

This means that if your business income falls below these thresholds. You may be eligible for the full 20% QBI deduction. While businesses with income above these thresholds may have a reduced or phased-out deduction. It's crucial to work with a tax professional to determine your eligibility and maximize your QBI deduction.

Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) is a federal tax credit. That incentivizes businesses to hire individuals from certain target groups. Such as veterans, ex-felons, and individuals who receive government assistance.

Small businesses have an opportunity to offset their tax liability as the WOTC has extended through December 31, 2025. While promoting employment opportunities for individuals facing barriers to employment.

The credit amount ranges from $1,200 to $9,600 per qualified employee. Depending on the target group and the number of hours worked. This tax credit can not only help reduce unemployment rates. But also offset the costs associated with onboarding and training new employees.

Small businesses should be aware of the eligibility requirements and take advantage of this tax credit if applicable.

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