Here”™s what you need to know about business tax law changes and inflation adjustments to make smart tax-planning decisions this year.
Standard mileage rates: In 2023, the rate for business miles driven is 65.5 cents per mile, up 3 cents from the midyear increase setting the rate for the second half of 2022.
Section 179 expensing: In 2023, the Section 179 expense deduction increases to a maximum deduction of $1,160,000 of the first $2,890,000 of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018.
The deduction was enhanced under the Tax Cut and Jobs Act of 2017 to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Also, of note is that costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $28,900.
Bonus depreciation: Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after Sept. 27, 2017, and before Jan. 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.
Qualified business income deduction: Eligible taxpayers can deduct up to 20% of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount. In 2023, these threshold amounts are $182,100 for single and head of household filers and $364,200 for married taxpayers filing joint returns.
Research & Development Tax Credit: Beginning in 2018, businesses with less than $50 million in gross receipts can use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.
Work Opportunity Tax Credit (WOTC): Extended through 2025 (The Consolidated Appropriations Act, 2022), the Work Opportunity Tax Credit is available for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40% of the first $6,000 of wages paid to a new hire.
Employee health insurance expenses: For taxable years beginning in 2023, the dollar amount of average wages is $30,700 ($28,700 in 2022). This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.
Business meals and entertainment expenses: Taxpayers who incur food and beverage expenses associated with operating a trade or business are able to deduct 100% (50% for tax years 2018-2020) of these expenses for tax years 2022 and 2023 (The Consolidated Appropriations Act, 2022) as long as the meal is provided by a restaurant.
Employer-provided transportation fringe benefits: If you provide transportation fringe benefits to your employees in 2023, the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $300. The monthly limitation for qualified parking is $300.
This column is for information only and should not be taken as advice. Consult with your tax advisor periodically to keep abreast of developments that may affect your taxes.
Norman G. Grill is managing partner of Grill & Partners LLC, certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien.
