The upcoming tax season can be a daunting prospect for any business. With the 2023 business tax bill quickly approaching, it is essential to begin preparing now in order to maximize savings for your 2024 tax season. Planning ahead and understanding the implications of the Inflation Reduction Act will help. Fortunately, we’ve compiled some great tips for reducing your 2023 business tax bill (which will be paid during the 2024 tax season).
Capitalize on the IRA
The Inflation Reduction Act (IRA) was signed by President Joe Biden in August of 2022, and there are some big ways your business could use it to help reduce your federal income tax liability.
According to a White House briefing, “the Inflation Reduction Act will reduce costs for small businesses by maintaining lower health care costs, supporting energy-saving investments, and bolstering supply chain resilience.”
The IRA extended the American Rescue Plan’s premium tax credit for the Affordable Care Act (ACA) plans by extending them through 2025. Because of these lower healthcare costs, entrepreneurs will be able to use those available funds to help grow or start their small businesses.
Small businesses will also receive a tax credit that covers 30% of the cost of switching to solar power solutions. This switch also helps lower long-term energy costs for SMB owners. And this energy efficiency can also mean a tax credit of up to $5 per square foot when these efforts deliver lower utility bills.
SMBs can also see a 30% tax credit pertaining to the expenses of purchasing electric and fuel cell model vehicles – another short-term money saver that lowers expenses in the long term.
On the personal side, you can upgrade your car by switching to an electric vehicle. Thanks to the IRA, you can receive up to $7,500 in tax credits for the purchase of a new electric vehicle. There are a few stipulations though: your new car must not have a price tag of more than $55,000 – if you’re buying an SUV, van, or pickup truck, the maximum increases to $80,000. There are income caps, however, so make sure you know the parameters of this tax
credit before you head out in search of the perfect eco-friendly ride.
There are also expanded credits for research and development (R&D), and the energy initiatives are likely to bolster the economy and the solar, wind, and other clean energy industries by creating new jobs, opportunities, and competition in that market.
Changes to Sales, Use, and Excise Taxes in 2023
Here are some quick updates on sales, use, and excise taxes by state:
- Virginia now exempts groceries from its state sales tax.
- Kansas is phasing in a tax exemption for groceries using a preferential rate.
- Kentucky will be using newly applied sales taxes to help reduce individual income tax rates.
- Gas taxes increased starting January 1, 2023, for Connecticut, Florida, Illinois, Michigan, New York, North Carolina, and Utah.
As each tax year brings new laws from the federal level all the way down to state and local tax initiatives, it’s important to stay connected to your trusted tax preparer or expert to ensure that your business isn’t suffering more than it needs to by operating under outdated tax code initiatives.
Do Your Local, State, & Federal Income Taxes with a Pro
Post-pandemic, businesses are learning more and more about the value of DIY when it comes to lowering business expenses. While painting your own shop or taking some social media marketing classes may be a great way to keep expenses down, skimping on your tax prep costs is a mistake.
Your communities (both on and offline) have so many great tax experts who are willing to help you keep the most money in your business accounts after tax time. With rising costs and inflation, it may feel like doing your own business taxes is a good idea. But there are several reasons why it actually is beneficial to pay a tax pro to help you through your filing:
- Good tax pros are knowledgeable about the latest tax code changes.
- More and more businesses have employees and customers from different states and countries – all with their own set of tax rules that you will need to keep straight. Your tax preparer is already savvy to these differences.
- Tax pros can give you options for maximizing your return and minimizing your tax liability.
- You have a trusted source to go to with questions, issues, and ideas.
Quick Tips to Reduce Your 2023 Business Tax Bill
We also wanted to share some general practices and strong business ideas that can help reduce your 2023 business tax bill.
You should always start by maximizing the effectiveness of every deduction and tax credit you can. This is another reason to partner with tax experts – they can often find ways in which your business could apply for more of these bill-lowering initiatives in the tax code.
Don’t forget about the tax implications of your business structure. Maybe you started as a sole proprietorship initially, but you would benefit from changing your listed business structure to a C or S corporation.
Include or increase your offer to match a percentage of your employees’ contributions to company 401(k) plans.
Strategize with your write-offs. Just because a one-time write-off may feel like the best thing right now doesn’t mean that a depreciation or other staggered write-off won’t be more beneficial in the long run.
E-File as Many Information Returns As Possible
E-filing is one of the best ways to keep your information returns and tax forms organized and accurate. That’s why the IRS continues to recommend that businesses and individuals e-file their taxes. Paper returns are time-consuming and harder to correct should there be errors.
eFile360 allows you to create bulk e-filing orders for your 1099s, 1098s, ACA forms, and W-2s. Shrink your time commitment and 2023 business tax bill by filing with us.
If you are ready to make the 2023 tax season the last time you
will struggle with organizing and filing your information returns, sign up for a free eFile360 account today!