For many small business owners, the new year signals the start of tax season preparation. Now is the time to organize your financial statements and look for ways to reduce your annual tax bill.
Many tax credit programs implemented during the COVID-19 pandemic are winding down, but there are also new opportunities to take advantage of increased deduction limits. Many longstanding tax breaks are slated to change for the 2023 tax year. Pay attention to the latest IRS guidance in each case.
Credits and deductions for small businesses in 2023 include:
- Section 179 incentivizes operational improvements and helps cut overhead costs. For tax year 2023, the maximum deduction is 80%.
- Expanded Child and Dependent Care Tax Credit (CDCTC) allows working parents and caregivers to claim 20% to 35% of care expenses; the maximum increased to $3,000 per person ($6,000 for two or more people) in 2023.
- Qualifying business meals and entertainment tax credit was adjusted during the pandemic to encourage support of restaurants, allowing businesses to deduct 100% of business meal expenses. For 2023, deductions have reverted: most business meals are now 50% deductible.
- In 2023, mortgage insurance premiums are no longer treated as deductible mortgage interest.
The New Markets Tax Credit (NMTC), which incentivizes private entities to invest in economically disadvantaged and distressed communities, is still in place for 2023 but expected to expire in 2025. Employer credit for paid family and medical leave was once again extended through 2025, and can currently be claimed for all wages paid between the tax years 2018 and 2025.
The IRS’s annual inflation adjustments for tax year 2023 will impact several tax provisions. For one, the standard deduction — one of the most common deductions — has increased to $13,850 for single taxpayers and $27,700 for married couples filing jointly.
Effective tax year 2023, the Inflation Reduction Act extended select energy-related tax breaks and adjusted the tax deduction for energy-efficient commercial buildings. Companies that work through LLCs or S corporations qualify for the Section 199A deduction for qualified business income (QBI) and can deduct 20% of their business income. QBI deduction limits have also increased to $182,100 for individuals and $364,200 for couples filing jointly. Retirement and health savings account plans have increased their contribution limits for the 2023 tax year. The limitation for salary contributions to health-related flexible spending arrangements increased to $3,050, while employee contribution limits for 401(k) plans increased to $22,500. If your business gives gifts, note the annual exclusion has increased to $17,000 for the 2023 calendar year — an increase from $16,000 in the previous calendar year.
The Emporia Area Chamber of Commerce offers many resources to help you start, run, and grow your business–including our annual Leadership Emporia Academy, monthly Group Lunches, Ribbon Cuttings, Business After Hours events, Legislative Dialogues, and more. Stop by the Trusler Business Center at 719 Commercial St., call 620-342-1600, or visit our website at www.emporiakschamber.org to learn more.
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“Let’s Talk Business” is a weekly column of the Emporia Area Chamber of Commerce and Visit Emporia. The mission of the Chamber is to be proactive in creating an environment for business and community success, guided by the vision that positive attitudes promote positive actions. Contact us at 620-342-1600 or chamber@emporiakschamber.org and visit our website at www.emporiakschamber.org.