Twenty23 will bring with it many significant tax changes, primarily the result of annual inflation adjustments which may cause your tax bill to look different than before.
Other changes come through legislation, like the FairTax Act of 2023 which would replace income, payroll and estate taxes with one national sales tax.
Tax Rates
As 2023’s tax season kicks into high gear, it is important to remain mindful of changes to state individual and business tax rates. Many states implemented numerous noteworthy tax policy reforms during their legislative sessions this year that have now started being implemented on July 1.
Indiana counties now provide a County Option Circuit Breaker Tax Credit that can help lower property taxes, while increasing employers’ maximum allowable tax-free parking and mass transit passes by employers. Furthermore, college debt interest deduction has increased to $2,500 without having to be itemized on Schedule A.
Other states made changes or introduced new sales tax rates; South Dakota reduced their statewide sales tax rate from 4.2 percent to 2 percent while Minnesota introduced one for 5 percent statewide sales taxes. Furthermore, several other states either reduced corporate income tax rates or repealed franchise (capital stock) taxes altogether.
Tax Deductions
No matter if your business operates as an S-corp or C-corp, it’s crucial to be aware of all available tax deductions. Beyond standard expenses like materials and supplies, other deductions such as meals and entertainment that serve a business purpose such as meeting with potential clients or building rapport with existing ones may also qualify as write-offs.
Installing energy-efficient upgrades on your home or commercial property may also qualify as qualifying expenses, since these capital expenses are generally deductible over several years.
Due to inflation, the IRS raised income tax bracket thresholds this year – helping workers whose wages haven’t kept pace with price increases. Although this adjustment occurs every year, due to high inflation it was more significant this time around.
Business Expensing
Tax season offers you the opportunity to write off most expenses associated with running your business, from supplies like pens, paper and toner cartridges to professional fees such as bookkeepers or accountants – even entertainment expenses such as paying a pianist at a piano bar would count towards deductible expenses for music bloggers!
Raw materials, storage costs, labor expenses and factory overhead all make up your company’s “cost of goods sold,” which you will use when calculating gross profit.
Keep detailed records of your company expenses and income to prepare yourself for tax season, an IRS audit or request for finance. Having this knowledge also allows you to make better decisions that benefit your employees, customers and ultimately save costs by preventing costly mistakes that have an adverse effect on your bottom line.
Payroll Taxes
As a business owner, you’re responsible for paying and withholding payroll taxes from employee wages. Federal employment taxes include Social Security, Medicare and unemployment insurance payments as well as federal insurance contributions act (FICA) payments that appear on paychecks.
Some states and cities impose local payroll taxes that help fund transportation projects and infrastructure needs.
Even though tax rules change annually, small business owners should keep some basic tenets in mind when working with a certified public accountant or other tax professional to plan for the future and anticipate tax season 2023 and beyond. Establish a solid record-keeping system which will keep you legally compliant during tax season as well as throughout the year; engage a certified public accountant or tax specialist in discussing current business structures to make sure you’re covered for 2023 and beyond.
