2023 Tax Law Changes: What Small Business Owners Need to Know
2023 Tax Law Changes: What Small Business Owners Need to Know
2023 brings a fresh set of federal tax law changes that will impact small business owners across the United States. Keeping up with these updates is vital for maintaining compliance and optimizing your tax savings. In this article, we'll outline the most significant changes and how they might affect your business. Please consult your professional tax advisor prior to implementing tax savings strategies.
1. Increase in Section 179 Deduction Limit
The Section 179 deduction allows small business owners to deduct the cost of qualifying equipment and property in the year of purchase, rather than depreciating the cost over several years. In 2023, the deduction limit has increased to $1,075,000, up from $1,050,000 in 2022. The phase-out threshold has also been raised from $2,620,000 to $2,700,000, making it more accessible for businesses to take advantage of this deduction.
2. Changes to Qualified Business Income Deduction (QBI)
The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from a pass-through entity, such as a sole proprietorship, partnership, or S corporation. In 2023, the income threshold for taxpayers to claim the full 20% deduction has increased. Single filers can now have a taxable income of up to $170,050 (up from $164,900 in 2022), while joint filers can have a combined taxable income of up to $340,100 (up from $329,800 in 2022) to qualify for the full deduction.
3. Changes to Employee Retention Tax Credit (ERTC)
The ERTC was introduced in 2020 to help small businesses retain their employees during the COVID-19 pandemic. While the credit was extended several times, it is no longer available for wages paid in 2023. Small business owners should be aware of this change as they plan their tax strategies for the year.
4. Expansion of the Work Opportunity Tax Credit (WOTC)
The WOTC is a federal tax credit available to businesses that hire individuals from certain targeted groups, such as veterans, ex-felons, and individuals receiving government assistance. In 2023, the WOTC has been expanded to include qualified long-term unemployment recipients. This change provides small business owners with an additional incentive to hire individuals who have been unemployed for 27 weeks or longer.
5. Introduction of the Electric Vehicle Charging Infrastructure Credit
The new Electric Vehicle Charging Infrastructure Credit provides a tax credit for small business owners who install electric vehicle charging stations on their property. The credit is equal to 30% of the cost of the equipment and installation, up to $30,000. This initiative aims to encourage the development of charging infrastructure and promote the adoption of electric vehicles.
The 2023 tax law changes present both challenges and opportunities for small business owners. Staying informed and planning accordingly can help you maximize tax savings and remain compliant with the law. As always, it's essential to consult with a tax professional to discuss your specific circumstances and ensure you're taking full advantage of the available tax benefits.