Rising Taxes for Small Businesses – What You Need to Know

financial planning small business
June 20, 2023

Tax laws are always evolving and changing every year, and this is especially true for small business taxes. 2023 is shaping up to be an especially distinctive year for small business accounting. Additionally, there will be a number of adjustments in place come April 2024 that may impact your company’s bottom line. 

The best way to plan for these changes (and ensure that your company’s operations remain unaffected) is to partner with an expert in small business tax preparation services. At Waters Hardy, we continually monitor the many adjustments that can affect our small business clients. Furthermore, we have the resources, tools, and expertise required to ensure that you take advantage of upcoming and potential benefits and aren’t financially impacted by a sweeping array of changes ahead. 

We’re standing by to provide small business tax help for all your questions. In the meantime, take note of some of the major changes on the horizon, which may result in higher taxes when the 2024 tax season rolls around. 

Bonus Depreciation Will Begin to Fade Out 

From mid-2017 until the end of 2022, business owners who purchased expensive equipment could claim 100% of the asset’s bonus depreciation the same year they bought the equipment. This was a big adjustment. However, depreciation is spread out over the lifespan of the equipment that was initially purchased in a given year. 

In 2023, the bonus depreciation provision will be going away unless it is extended by Congress sometime before the end of the year. As it currently stands, in 2023, the bonus depreciation falls to 80%, and it will drop an additional 20% in every year that follows.  

Suspension of Tax Cuts and Jobs Act Rules is Ending 

During 2019 and 2020, and through a temporary suspension of the 2017 Tax Cuts and Jobs Act rules, businesses could carry their net operating losses back for five years. Also, they could move them forward for an indefinite period of time.  

However, this suspension has ended as of 2023, and taxpayers cannot deduct losses of more than $540,000 if they are married and are filing jointly or $270,000 if they are filing individually. This applies to all business income, which includes Schedule C taxpayers.  

Increased Limits for Charitable Contributions Are Expiring 

A temporary rule that allowed C corporations and individuals to deduct a greater percentage of their income from the charity (which went into effect in 2021) is no longer in place for the 2023 tax year.  

Interest Expense Limitation Rule is Back  

Several rules, laws, and regulations that were temporarily suspended during the height of the Coronavirus pandemic in 2020 and 2021 are back in place. This includes the interest expense limitation rule. 

The interest expense limitation rule limits the amount of deductible interest for a complete year to the total of the following: 

  • The business interest income for the year 
  • 30% of the total adjustable taxable income 
  • The floor plan financing interest expense 

This tax rule was temporarily suspended during the pandemic, has returned as of 2022, and will most likely continue in the years ahead.  

Small Business Tax Rules for Everyday Expenses are Changing 

Some small deductions and credits will likely change in the months and years ahead. For example, in 2022, businesses could deduct up to 100% of what they spent in restaurants for work-related purposes throughout the year. In 2023, however, that figure will drop back to 50%. 

Retirement Plans for Employees Are More Attractive 

Not all of the changes on the horizon are bad news for small businesses. For example, businesses that have up to 50 employees cannot claim a tax credit for 100% of the costs involved with launching a new retirement plan, with a limit of $5,000 total in expenses. In addition, businesses can also claim a tax credit for up to $1,000 in employer contributions for every employee’s retirement plan. 

Note that the retirement-related tax credit begins to phase out for companies with more than 50 employees. For companies with 51 to 100 employees, an estimated 50% of retirement plan start-up costs will likely be covered.  

The IRS is Getting More Assistance for the 2024 Tax Season 

The Internal Revenue Service (IRS) also recently announced that they will hire an additional 4,000 phone support personnel and 700 in-person support personnel to help with the 2023 tax season.  

While the focus of this larger workforce will be better customer support, a minor increase in audits may also be a possibility come 2024. 

The Best Way to Navigate These Changes and More is to Have an Expert at Your Side 

Small business tax preparation is not a simple venture. Many business owners often don’t have the time or resources to keep track of the many federal and state changes that impact how they do business. 

However, paying attention to these changes and possible opportunities is imperative throughout the year. Small adjustments on your operating costs and small business accounting can make a huge difference when it’s time to review and file your 2023 taxes. 

But help on all these changes is readily available at any time, and well before the April 2024 deadline is on the immediate horizon. 

Small Business Tax Solutions with Waters Hardy  

At Waters Hardy, we can help with all varieties of tax preparation services, and we specialize in small business tax help that revolves around the ever-changing tax laws that affect our clients. We work with companies across all industries and in all sizes to provide trusted services that can ease your expenses and tax concerns for years to come. 

Contact us today. 

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