2023 Tax Landscape
Are Any Major Provisions Expiring?
Most of the Trump-era tax breaks expire after 2025, including the lower income tax rates, estate tax exemption, and small business 20% deduction.
According to Congressional members on both sides of the aisle, there will not be significant major tax legislation in 2023, which is not surprising given the proximity of the Presidential election season.
Bonus Depreciation is still around: There’s been quite a bit of confusion about bonus depreciation. Is it still here, or is it over? Rest easy; bonus depreciation has not expired. For 2022, bonus depreciation is the full 100%. After 2022, this popular tax break does not expire, but it is reduced for 2023.
This most favored of tax breaks by the small business owner is scheduled to decrease in 2023 from 100% to 80% and then decrease in 20% increments each year thereafter. However, many lawmakers believe that bonus depreciation is the one tax item that will be addressed in 2023 and restored back to 100%, given the current economic conditions.
Don’t forget about Sec.179 expensing: Given the focus on bonus depreciation, it is easy to forget that the more traditional method of immediately deducting business equipment, traditionally known as “business equipment expensing,” is still around. Although the differences between bonus deprecation and “equipment expensing” are beyond this discussion, Sec. 179 is still around and can have relevant use in tax planning for business equipment purchases.
Be Wary of Employee Retention Credit claims: One of the programs Congress used to encourage small businesses to keep their workers employed was the Employee Retention Credit (ERC), which provided valuable payroll tax credits for those that qualified. This program has worked well for some, but many small businesses did not meet the qualifications.
Unfortunately, there has been an increase in third-party advisory companies falsely promoting promises of large refund claims, often filing these claims without reviewing the validity of the qualifications. The IRS is warning small businesses that these payroll credit filings are under intense scrutiny and carry large penalties for wrongly issued refunds. Small business owners should take great care in making sure whoever files for this credit is well-versed in the qualifications.
Why the scrutiny? This credit is based on employee wages. However, you cannot use the same wages for the credit that was used to obtain PPP loan forgiveness. As most small business owners know, the foundational use of PPP monies was to pay employee wages.
2023 Business Meals Deduction and mileage rate: The 100% business meal reprieve is over and reverts back to 50% in 2023. The standard mileage rate remains at 65.5 cents-per-mile, which is where it was for the last half of 2022.
E-filing deters taxpayer identity theft: While it may seem strange to some that tax return paper-filing is still a thing, the fact is the IRS still has to process thousands of these types of returns each year. This creates several problems that can be eradicated by e-filing. The main ones are protection from identity theft and quicker processing of the tax return.
