Small-Business Tax Changes and Tips to Know in 2023
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Tax season brings rule changes for business owners, and this year is no different. For instance, you can deduct 100% of what your business spent at restaurants in 2022 on your taxes this year. But in 2023, that figure will return to 50%.
What never changes, experts say, is the need to keep accurate records and work with a tax professional you trust.
"Business owners are oftentimes viewing their financial record-keeping as the last thing to do on the list. And they do it themselves, and they do it at night over a cup of coffee while they're watching TV," says David Levi, a certified public accountant and managing director at CBIZ, a tax, accounting, insurance and HR firm with offices across the United States.
"[But] you don't know what you don't know. And the one thing that's certain in the tax world is change," Levi says.
Here are some key rule changes and deadlines to note as you file your 2022 taxes and plan for 2023.
Find out whether you can still claim the Employee Retention Tax Credit
The Employee Retention Tax Credit — a policy meant to encourage business owners to keep staff during the COVID-19 pandemic — applied only to wages paid before Oct. 1, 2021, so you can't claim it on your 2022 tax return.
But there's still time to amend your 2020 and 2021 returns to claim the ERTC, 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.
"It's probably one of the most powerful credits that I've seen in my 30 years with the [Internal Revenue] Service," says Eric Hylton, the national director of compliance for Alliantgroup, a tax consulting firm, and former IRS commissioner for the Small Business/Self-Employed Division.
You might qualify for the ERTC 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.
Talk to a tax professional about whether you qualify. Hylton notes, too, that there were "significant delays" in processing ERTC applications last year.
Prepare for bonus depreciation to begin fading out this year
From mid-2017 until the end of 2022, business owners who bought costly equipment could claim 100% of the asset's bonus depreciation — which is usually spread out over the life of the equipment — in the same year they bought the asset.
That provision is going away unless Congress extends it. In 2023, bonus depreciation falls to 80%. It drops an additional 20% each year after that.
"People have been of the mindset that, 'you know, if I go out and I buy a piece of equipment, or I go out and I spend something on my real estate, that's going to be completely capitalizable; I might be able to take 100% bonus [depreciation],'" Levi says. "That's not the case, [in 2023] it's 80%."
Look into starting a retirement plan for your employees
Businesses with up to 50 employees can now claim a tax credit for 100% 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.
The tax credit phases out for businesses with 51 to 100 employees. It previously covered 50% of retirement plan startup costs.
"If a business owner is on the fence [about] whether they should start a 401(k) or retirement plan, some of these credits could push them over the decision point," says Janel E. Carroll, a CPA and certified financial planner at Truepoint Wealth Counsel in Cincinnati.
Plan a tax- and energy-efficient renovation
If you've been thinking about going green, 2023 might be a good time from a tax perspective, Hylton says. The Inflation Reduction Act, signed into law in August 2022, included several tax credits and business deductions.
One change increased the size of the Energy-Efficient Commercial Buildings Deduction, allowing business owners to claim larger deductions per square foot of renovation if their projects qualify. In addition, tax-exempt organizations such as charities and religious institutions can now claim these deductions, too.
On top of that, in 2023, businesses can claim a tax credit of up to $7,500 when they purchase electric or fuel cell electric vehicles. For vehicles larger than 14,000 pounds, the credit can go up to $40,000.
Hylton encourages business owners to "probe your CPA or tax practitioner on some of these other credits [to see] whether your business actually qualifies" for these tax benefits.
Get ready for a more robust IRS
The Internal Revenue Service has announced plans to hire 4,000 phone support staffers and 700 in-person support staffers for the 2023 tax season. It's the result of a funding boost meant to help the agency provide better customer service and expedite processing times, Hylton says.
When waiting for a refund or tax credit, "time is money," Hylton says.
While Hylton notes that a better-staffed IRS may also result in a "slight increase in audits," he and Carroll don't think most business owners need to worry.
"I think the focus is going to be on customer service — and based on the wait times that we have when we call the IRS, that's definitely where the need is," Carroll says.