From new business dining rules to “green” incentives, 2023 will see many adjustments to tax law. We spoke with some experts to find out what they are and how business owners can prepare.
Gary
Businesses that regularly run business meal tabs should be aware that only 100% to 50% of “reasonable” expenses can be deducted on the 2023 federal return. Mazars Partner Erik Gary said: “So if you’re bringing clients to an event that includes a dinner and show, it might be worth trying to get bills that split the entertainment and food portions,” he said. Another issue of when to buy fixed assets is likely to wrinkle this year.In general, if business income rates are expected to rise after 2024, it’s usually worth considering deferring purchases. (if it makes sense from an operational and cash flow perspective), but at the same time the so-called bonus depreciation rate will decrease by 20% each year (80% in 2023, 60%, dropping to 40% in 2025, 20% in 2026, and phasing out in 2027).Therefore, business owners consult their accountants to analyze the mix and see what makes sense. I have to make sure there is.”
And as more people work from home, “work-at-home deductions are getting more attention,” Gary added. “The taxpayer should be aware that he has two methods, the ‘Simplified Method’ and the ‘Standard Method. The simplified method limits the maximum deductible to his $1,500, while the standard method applies the ratio of the area of his office to the total area of his home. Taxpayers should consult their tax advisors or other advisors to determine the best method for their individual circumstances. ”
Finally, business owners and others considering purchasing an electric vehicle should pay attention to several provisions of the Federal Inflation Reduction Act of 2022. Vehicles weighing him over 14,000 pounds – but for personal use, after January 1, 2023, subject to the purchaser’s income and his MSRP (manufacturer’s suggested retail price) limits,” he said. pointed out. “However, vehicles purchased for business use are generally not subject to these income limits.”
disappearing bonus
I’m in
Current 100% Federal Bonus Depreciation – Businesses are typically able to immediately deduct the majority of the purchase price of machinery and other eligible assets. This is starting to reduce the cost over the item’s “life” rather than amortizing it against the income. , according to his Jordan Amin of EisnerAmper tax partner. “The last year of 100% bonus depreciation will be 2022 and will decrease by 20% each year beginning with tax year 2023,” he noted. “Even in a downturn, it can be an important way to reduce corporate taxes, but companies need to be mindful of timelines and want to factor that in as part of their asset purchase strategy. You might think that.”
And the Pass-Through Business Alternative Income Tax NJ (NJ BAIT), the Garden State’s workaround for federal restrictions on deductible state and local taxes, remains attractive, he added. “New Jersey was one of the first states to offer a workaround to the $10,000 cap on the SALT deduction enacted by the Tax Cuts and Jobs Act of 2017, and it’s still in effect.” Amin explained. “However, business owners should review their company structure. Sole proprietorships and single-member LLCs are generally not available for NJ BAIT elections. may be subject to different regulations, so business owners should meet with their CPA and other advisors early on to develop a tax strategy.”
Sosa
Taxpayers appear to have dodged one bullet at least temporarily in 2023, according to Betsy Sosa, tax director of Aprio LLP’s Fairfield office, but significant changes to payment reporting are coming at a rapid pace. you should know. “Business owners should be aware of upcoming changes to reporting transactions from third-party payment organizations such as PayPal and Venmo,” she said. “Beginning January 1, 2023, the TPSO will be required to report third-party network transactions in which the total payment amount paid in the year exceeds $600, regardless of the number of transactions. For example, over $6001 A single transaction triggers the reporting requirement, and you can, for example, make 60 transactions at $11 each to the same payee.”
The 2021 American Rescue Plan adjusted TPSO reporting thresholds, lowering them from the previous trigger of 200 or more annual transactions totaling more than $20,000. The new lower threshold was originally slated to apply to transactions paid in 2022, but on December 23, his Acting Commissioner of Internal Revenue Doug O’Donnell announced a postponement of 2023 activity. bottom. tax professionals and industry. ”
Business owners “also need to track details when these third-party services are used to pay non-business related friends and family, such as refunds or personal gifts,” Sosa said. Added. “These types of payments are generally tax-free and may need to be excluded if personal accounts are used for Venmo or other TPSOs. , is another reason why business network transaction accounts should always be separated from personal transactions.”
Changes in the pension system
Bell will soon become a toll for many small New Jersey businesses that currently don’t offer pension plans to their employees, according to INTAC-FuturePlan vice president Charles Rosenberg. Under the New Jersey Safe Choice Act, a state-sponsored retirement plan designed to help private sector employees save for the future, most businesses with 25 or more employees , you’ll need to establish a pension plan or sign up with a state designed — one that allows employees to contribute a portion of their pre-tax earnings to their personal retirement accounts through payroll deductions. Under the current program, employees are automatically enrolled at the 3% contribution rate unless they opt out or change the rate, and can generally contribute up to $6,000 annually to the plan, per IRS guidelines. .”
Originally, the state program was scheduled to go into effect on March 28, 2021, but COVID-19 has delayed the rollout and no official start date has been announced. “Nevertheless, we have received calls from many employers who want to get ahead of their requirements,” added Rosenberg. “In today’s competitive labor market, employers are beginning to realize that retirement plans are becoming an increasingly ‘must-have’ tool for attracting and retaining qualified employees. ”
The federal government also encourages eligible small businesses, which typically have 100 or fewer employees, tax credits designed to offset the costs of starting a new pension plan. “Generally, eligible small businesses may file Form 8881, Small Business Pension Plan Startup Expenses Credit, and receive a tax credit of up to $5,000 for three years on normally required startup expenses. SEP, SIMPLE IRA, 401(k), or other eligible plan,” he explained. “There is also growing interest in cash balance defined benefit plans that may offer significant tax benefits to owners and key employees. You should consult an accountant or other advisor before hiring.”
shield
According to Lee Sheilds, office managing partner at Marcum LLP and tax services partner at Marlton and Northfield, the retirement landscape for small businesses continues to change. “For example, a business owner could have access to his 401(k) plan alone that can protect up to $22,500 in 2023,” he said. “If you’re over 50, in 2023 he may be able to make an additional ‘catch-up contribution’ of $7,500. ”
Companies with 100 or fewer employees could also consider a SIMPLE-IRA, where employees can contribute up to $15,500 ($19,000 for those over 50) in 2023,” he added. “There are other small business plans available, such as the Simplified Employee Pension IRA (SEP IRA) and the Safe Harbor 401(k), each with their own benefits and limitations, so an employer may decide to apply for his CPA or other Consult an advisor and review.”
Mr. Sheilds’ firm occasionally receives inquiries about the retirement plan’s ability to invest in so-called “alternative investments,” where funds are used to purchase assets such as gold, precious metals, and even business opportunities. said. “Some voluntary plans may allow these options, but the rules need to be carefully considered and adhered to,” he explained. “Irrespective of the specifics of the plan or investment, implementing certain types of plans can help business owners cut their current taxes while taking steps to build and grow their nest eggs when they retire. It’s the best way.”
