Running a small business is no small feat, and you certainly don’t want to miss out on any tax deductions that could boost your savings. So, let’s dive into the key tax changes for small businesses in 2023, and explore some potential tax write-offs, whether you’re a one-man-band or managing a team. Remember, the deductions you can claim depend on your business structure, be it a sole proprietorship, LLC, S-Corp, or something else.
First off, let’s look at the IRS’s report on small business tax changes for 2023. The maximum net self-employment earnings subject to social security tax is $160,200. There’s no cap on earnings subject to the Medicare part. The standard mileage rate for business use of your vehicle has increased to 65.5 cents a mile. There’s a redesigned Form 1040-SS for 2023, and Schedules C and SE (Form 1040) can now be filed with it. The bonus depreciation deduction is starting to phase out in 2023, dropping from 100% to 80%.
There’s a new Form 7205 for claiming the section 179D deduction for qualifying energy efficient commercial building expenses. If your business buys a qualified commercial clean vehicle, you may qualify for a clean vehicle tax credit. The temporary 100% deduction for business meal expenses has expired, and it’s back to the previous 50% allowable deduction from January 1, 2023.
If you’ve installed solar energy, there are two types of tax credits available. The Investment Tax Credit (ITC) reduces your federal income tax liability by a percentage of the cost of a solar system installed during the tax year. For 2023, if the project meets federal labor requirements, that’s a 30% tax credit. The Production Tax Credit (PTC) is a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system’s operation. It reduces your federal income tax liability and is adjusted annually for inflation.
Now, let’s look at the top 25 tax deductions for small businesses. These include home office deductions, real estate taxes, business meals, legal and professional fees, business property rental, mortgage interest, health insurance premiums, business education expenses, internet expenses, business equipment, business insurance premiums, business travel expenses, office supplies, advertising & marketing costs, phone expenses, business vehicle expenses, employee compensation, startup costs, professional service fees, retirement contributions, bad business debt, state tax deductions, employee and client gifts, foreign earned income exclusion, and charitable contributions.
Keeping accurate records of all business-related expenses throughout the year is crucial for maximizing tax deductions. Use digital tools or accounting software to track expenses in real time and keep copies of all receipts, invoices, and bank statements. Regularly reviewing and updating your records can significantly ease the tax filing process and support your deduction claims.
Avoid common mistakes in claiming tax deductions, such as mixing personal and business expenses, overestimating deductions, neglecting to track small expenses, or failing to stay updated on tax law changes. Strategic use of tax deductions should be an integral part of your overall business tax strategy. Deductions can significantly lower taxable income and, consequently, the tax liability.
Navigating the complexities of tax deductions can be challenging, so consider getting professional tax assistance. Tax professionals can provide expert advice tailored to your specific business needs, ensuring you take advantage of all eligible deductions while remaining compliant with tax laws. They can also offer strategic guidance on tax planning and help you prepare for future tax years.
When claiming deductions on your small business income taxes, gather all necessary documents, fill out the appropriate tax forms, calculate deductions, file taxes, and submit them to the IRS. If you’re unsure how to maximize your deductions, it can be helpful to consult with a tax professional who can give you tailored advice.
