Tax Season Prep You Should Tackle Today
Tax season is upon us, and it’s a time of great frustration for individuals and small business owners alike. The deadline for filing is still a way off, on April 15; but this doesn’t mean you can ride a wave of inaction until spring is closer. Instead, this is the ideal point to begin getting organized—and investigating how to cut down on your tax bill. A lot of the small-business Covid-era tax credits, implemented at the height of the pandemic, are lapsing. But the good news is that there are new deductions and credits business owners can take advantage of. Let’s walk through what small business owners like you should know as they start planning to file this year.
Small Business Credits in 2023
Section 179 allows small and medium-sized businesses to take an immediate deduction on depreciable assets, which include things like equipment, vehicles, and software, all in an effort to encourage operational improvements and reduce pricey overhead. The year 2022 was the last year businesses were able to deduct 100 percent of qualified expenses. After 2022 and through 2027, the allowance drops 20 percent per year. This means that in tax year 2023, the maximum amount businesses can deduct is 80 percent; in tax year 2024 it’ll drop to 60 percent, and so forth.
The business meal tax deduction was passed in 2020 as a way for businesses to support the hard-hit restaurant industry during the pandemic. Any food or beverage purchased at a restaurant in 2021 or 2022 was 100 percent deductible, but purchases in 2023 go back to how they were laid out in the Tax Cuts and Jobs Act. This means that most business meals (but not all) are now just 50 percent deductible—some are 100 percent, and some are not deductible at all.
For tax year 2023, mortgage insurance premiums will not be considered as deductible mortgage interest. Businesses with physical locations could be affected, and more detail about what this means can be found here in publication 936 from the IRS.
Adjusted Tax Provisions
For filing year 2023, the Inflation Reduction Act extended some tax breaks for energy-related costs, and made adjustments to the deduction for energy-efficient commercial properties. The IRS and the Treasury Department also put forth regulations in November 2023 that expanded the definition of eligible properties.
If you operate as a sole proprietorship, partnership, S corporation, trust, or estate located within the United States, you’re able to take advantage of the Section 199A deduction for qualified business income (QBI). This allows you to deduct 20 percent of your business income, and income limits have increased to $182,100 for individuals and $364,200 for couples filing jointly.
For small businesses working internationally, the foreign earned income exclusion has increased to $120,000 (up from $112,0000 in 2022). The IRS defines foreign earned income as “Wages, salaries, professional fees, or other amounts paid to you for personal services rendered by you.”
As always, it’s important to work with your accountant or a professional tax advisor when it comes to filing business taxes, but you can avoid last-minute headaches by considering the above updates and how they may impact your business. For news and updates on all things small business, make sure you’re keeping up with the Financial Pantry. We’re always on the lookout for the latest announcements, regulations, and more that can help you shape the success of your company. Visit us at ARF Financial to learn more!
Your privacy is important to us. ARF Financial will never sell or rent your information to any third party. Click here for more information about our privacy policy.