Small business tax changes and tips to know in 2023

Tax season brings rule changes for business owners, and this year is no different. For example, you can deduct 100% of what your business spent on restaurants in 2022 on your taxes that year. But in 2023, that figure will return to 50%.

Experts say what never changes is the need to keep accurate records and work with a tax professional you trust.

“Business owners often look at financial reporting as the last thing on their to-do list. And they do it alone, and they do it in the evening over a cup of coffee while watching TV,” says David Levy, CPA and managing director at CBIZ, a tax, accounting, insurance and human resources firm with offices in the United States.

“[But] you don’t know what you don’t know. And the only thing certain in the tax world is change,” Levy says.

Here are some key rule changes and deadlines to keep in mind as you file your 2022 taxes and plan for 2023.

Find out if you can still claim an employee retention tax credit

The Employee Retention Tax Credit — a policy intended to encourage business owners to retain staff during the COVID-19 pandemic — only applies to wages paid before October 1, 2021, so you can’t claim 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 usually amend tax returns within three years of filing your return.

“This is probably one of the most powerful credits I’ve seen in my 30 years with [Internal Revenue] Service,” says Eric Hilton, national director of compliance for Alliantgroup, a tax consulting firm, and former IRS commissioner for the Small Business/Self-Employed Division.

You may be eligible for the ERTC if your business is ordered to close completely or partially in 2020 or 2021, or if your revenue compared to 2019 has fallen by more than 50% in 2020 or more from 20% in 2021

Talk to a tax professional about whether you qualify. Hilton also notes that there were “significant delays” in processing ERTC applications last year.

Prepare for bonus depreciation to start fading this year

From mid-2017 to the end of 2022, business owners who purchased expensive equipment could claim 100% of the asset’s bonus depreciation — which is typically spread over the life of the equipment — in the same year they purchased the asset .

That provision lapses unless Congress expands it. In 2023 bonus depreciation drops to 80%. It declines by an additional 20% each year thereafter.

“People are of the mindset that, ‘you know, if I go out and buy a piece of equipment, or I go out and spend something on my real estate, it’s going to be fully capitalized; maybe you can get 100% bonus [depreciation]” says Levy. “That’s not the case, [in 2023] that’s 80%”.

Consider starting a retirement plan for your employees

Businesses with up to 50 employees can now claim a tax credit for 100% of pension plan start-up costs, up to $5,000. You can also claim a credit of up to $1,000 in employer contributions to each employee’s plan.

The tax credit is phased out for businesses with 51 to 100 employees. Previously, it covered 50% of the start-up costs of the pension plan.

“If a business owner is on the fence [about] whether they need to start a 401(k) or retirement plan, some of these credits can push them past the decision point,” says Janelle E. Carroll, 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, Hilton says. The Inflation Reduction Act, signed into law in August 2022, includes several tax credits and business deductions.

One change increased the amount of the deduction for energy-efficient commercial buildings, allowing business owners to claim larger deductions per square foot of renovations if their projects qualify. In addition, tax-exempt organizations such as charities and religious institutions can now claim these deductions as well.

Additionally, in 2023, businesses can claim a tax credit of up to $7,500 when they buy electric vehicles or fuel cell electric vehicles. For vehicles larger than 14,000 pounds, the credit can go up to $40,000.

Hilton encourages business owners to “check with your CPA or tax professional for some of these other credits [to see] whether your business really qualifies” for these tax breaks.

Get ready for a more stable IRS

The Internal Revenue Service announced plans to hire 4,000 telephone support staff and 700 in-person support staff for the 2023 tax season. This is the result of increased funding designed to help the agency provide better customer service and speed up processing times, Hilton says.

When you’re waiting for a refund or tax credit, “time is money,” Hilton says.

While Hilton notes that a better-staffed IRS could also lead to a “slight increase in audits,” he and Carroll don’t think most business owners should worry.

“I think the focus is going to be on customer service — and based on the wait times we have when we call the IRS, that’s definitely the need,” Carroll says.

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Rosalie Murphy writes for NerdWallet. Email: [email protected]

The article Small Business Tax Changes and Tips to Know in 2023 originally appeared on NerdWallet.

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