Big tax news for Small Business owners!
As the cost of living in America continues to soar, the Internal Revenue Service has increased tax brackets and the standard deduction by about 7% for 2023.
The amount of income that will be subject to taxes for the majority of people will decrease because this is the largest increase to the standard deduction since the tax system began to be indexed to inflation in 1985.
Every year, the IRS modifies the tax rules to protect Americans from paying higher taxes when inflation depreciates the dollar. According to Tom O'Saben, government relations director for the National Association of Tax Professionals, revisions have been rather modest over the past five years, but an exceptionally significant adjustment is planned for 2023 due to decades-high inflation.
"The tax adjustments for 2023 are an accurate reflection of our economic reality," he said. "They are keeping up with the increase in everything we consume on a daily basis."
The energy efficient commercial buildings deduction will be indexed for inflation starting with tax year 2023 thanks to the Inflation Reduction Act, which also extended other tax advantages connected to energy. For tax year 2023, the appropriate dollar amount used to calculate the maximum deduction is $0.54 increased (but not above $1.07) by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to have decreased by a percentage greater than 25%. For each percentage point by which the total annual energy and power costs for the building are certified to have decreased by a percentage greater than 25 percent, the applicable dollar value used to calculate the increased deduction amount for specific property is $2.68 increased (but not above $5.36). What should you know as a small business owner? Due to the rise in new business creation, there are now more new business owners than ever who must cope with tax season and potential tax calamities. Although there aren't many tax changes that will affect small businesses in the upcoming tax season, the ones that do could cause problems if owners aren't careful, especially when combined with perennial tax problems that tend to trip up small businesses. Before the April 2023 federal income tax deadline, many business owners will first have to pay a sizable tax bill related to the pandemic. Small firms that utilized Covid provisions in 2020 to postpone paying a portion of their Social Security payments were required to pay back 50% of what was owing at the start of 2022. Jan. 3, 2023 is when the remaining 50% is due. Even though the IRS has been reminding business owners to pay their debts by the due date, Eric Bronnenkant, head of tax at Betterment and adjunct professor of taxation at Seton Hall University, said that it's still something that can easily slip through the cracks if owners aren't paying close attention.
Although analysts predict that it will happen within a month, the IRS has not yet announced any inflation adjustments for retirement plan funds. The 8.7% increase in Social Security benefits in 2023 may provide some relief for retirees, but according to O'Saben, these benefits were not intended to be used in isolation.