What Has Changed Regarding Small Business Taxes in 2023?

The roughly 7,000-page U.S. tax code is a remarkably intricate collection of legislation. It’s effectively a living document that is altered and amended yearly, which only serves to muddle matters further. Simply put, small business taxes, and taxes in general are hard, and if you don’t have a committed accounting expert on your side, it may be very difficult to keep up with all the changes.

Small business owners already have a lot on their plates without having to keep track of all the annual changes to the tax code. When it comes to tax reforms, 2023 is no exception, especially for small business owners. So, as you prepare your 2022 taxes and make plans for the upcoming year, take notice of the important tax changes and deadlines in 2023.

Significant Tax Reforms for 2023

Standard Mileage Rate Increase

2023 saw a 3-cent increase in the normal mileage rate for corporate miles, bringing it to 65.5 cents per mile.

179 Section Expensing

The first $2,890,000 of qualified equipment that is placed in operation during the current tax year is now eligible for a Section 179 expenditure deduction up to a maximum deduction of $1,160,000 per tax year. Improvements to non-residential property, such as roofing, HVAC systems, fire prevention, alarm, and security systems, are now included in the deductible.

Modification to the Qualified Business Income (QBID) Deduction

Businesses that fulfill certain requirements can deduct up to 20% of their eligible business income on their tax returns thanks to the qualified business income deduction (QBID). So, the 2023 amendment raises the qualification level to $182,100 for single and head-of-household tax filers. And up to $364,200 for taxpayers who file jointly with their spouses.

Credit for Work Opportunity

Through December 31, 2025, the Work Opportunity Tax Credit (WOTC) has been extended. Businesses that recruit people from specific target categories, such as veterans, ex-felons, and people receiving government assistance, are eligible for a tax credit under the WOTC.

Depending on the target audience and the number of hours performed, each qualified employee may receive a credit. It is usually in the range of $1,200 to $9,600. This tax credit not only lowers unemployment rates for people who have trouble finding work, but it also helps to defray the expense of hiring and training new employees.

Fading Out of Bonus Depreciation

From 2017 through 2022, business owners could deduct up to 100% of an asset’s bonus depreciation in the year the equipment was purchased. However, the bonus depreciation will decrease to 80% and then an additional 20% for each succeeding year unless Congress extends this.

Be Ready for a Stronger IRS

An unprecedented $46 billion was allotted to the IRS under the Inflation Reduction Act of 2022, with a large portion going toward the hiring of up to 87,000 extra IRS agents.

Because of this, small business owners could likely experience a surge in audits with an army of auditors at their disposal. So, this is not exactly good news for entrepreneurs and the middle class.

Trusting a small business taxes experts with your accounting is the greatest method to protect your company against an audit. If the IRS does send you an audit notice, contact Your Part Time Accountant.


What Kind of Tax Savings Should a Business Owner Make?

The amount of taxes a small business owner should set aside depends on several variables, including:

  • Type of enterprise
  • Income range
  • The tax rate
  • Setting aside at least 25% of income to pay state and federal taxes is a solid general rule.

Are Small Businesses the IRS’s Main Concern?

The IRS’s capacity to provide small firms more attention has been considerably enhanced by its increased budget. The IRS will be able to focus more on tax compliance and enforcement. However, small businesses often have fewer resources available, making them more prone to making tax mistakes.

Even the IRS has a division for small enterprises and self-employed people that is solely focused on serving their requirements. However, this section also has the time and means to spot tax evasion and noncompliance.

What Causes an IRS Audit for Proprietors of Small Businesses?

An IRS audit may occur for several reasons. Underreporting income, unusually high deductions and home office deductions. Cash transactions, unusually high charitable deductions, and noncompliance with payroll regulations are a few frequent examples.