In The words of Ben Franklin: “In this world nothing can be said to be certain except death and taxes.”
And yet, taxes themselves are always in flux. As the 2022 tax year winds to a close, here are the top three tax changes for small businesses to be aware of in 2023:
- New pension credit for small businesses
Reduce your taxes and help your employees save for retirement at the same time—it’s a win-win situation. The new pension credit allows small businesses to save on taxes when they set up a retirement plan for their workers. You can now deduct 100% of the cost of starting a retirement plan, up to $5000, and on top of that, add a credit for each employee plan you contribute to, up to $1000 per employee. To qualify, you must have 50 or fewer employees.
How exactly does it work? Let’s say you contribute $50 a month to one employee pension plan. At the end of the year, you’d get $600 back in your tax refund. Now imagine if you contributed $80 a month to five employee pension plans. At the end of the year, you’d get back $4,800. So if you’re waffling over whether or not to set up employee pension plans, and you qualify for this credit, the answer is yes.
- First-year bonus depreciation
Most small businesses don’t take full advantage of depreciation when filing their taxes, and as a result, they miss out on hundreds to thousands of dollars in savings. But it’s an easy way to get more back in your tax refund, and now is the time to use it.
Depreciation, in terms of taxes, refers to a deduction that allows you to subtract the cost of a certain business item over time as you use it. In the past, if you bought equipment for your business, you could claim 100% of its depreciation in the year in which you made the purchase. But moving forward, that 100% bonus depreciation will be reduced each year, starting at 80% for the 2023 tax year. After that, it will fall by 20% each year.
So if you’ve been waiting to make an expensive purchase for your business, do it this year. That way, you’ll be able to claim 80% depreciation, whereas if you wait until next year, you can only claim 60%.
- 1099-K form
In today’s remote and gig economy, freelancing and contractual work is quickly becoming the rule rather than the exception. As more people recognize the value of outsourcing, freelancers and small business owners will likely be receiving larger payments than in the past.
As a result, the IRS now requires third-party digital platforms to send 1099-K forms to all freelancers and small business owners who receive more than $600 through the platform. These forms can help make taxes easier for you by providing you with a clear statement of how much you earned, so keep them handy when you receive them. And be sure to set aside some of the money you receive through these platforms for your taxes!
But I just paid 2022 taxes, we hear you say, do I really need to start thinking about 2023 already?
We hear you. But the answer is yes, it’s never too early to start thinking about taxes—that’s one thing in this world that is certain.