For many business owners, financial record keeping often gets pushed to the end of the to-do list. It’s tempting to manage this task alone, perhaps late at night over a cup of coffee with your favorite Netflix show playing softly in the background.

However, in the realm of taxes, change is constant, and as the saying goes, “You don’t know what you don’t know.”

As you start preparing your 2023 taxes, keep the following key rule changes in mind to ensure compliance and optimize potential benefits for your business.

Key Tax Changes for 2023

Preparing and filing your taxes for the 2023 tax year requires awareness of the various changes that have come into effect. These alterations in tax laws and regulations can significantly influence how you report your business income, claim deductions and how much tax you owe.

Freeze on Employee Retention Credit (ERC) Claims

During the COVID-19 pandemic, the Employee Retention Credit (ERC) played a crucial role in aiding businesses that maintained their workforce amid shutdowns and financial downturns.

However, concerns over ineligible ERC claims and related frauds have led the IRS to impose a moratorium on new ERC claims since September 14, expected to continue until the end of the year.

In response to these concerns, the IRS has introduced a withdrawal option for businesses that have filed for the ERC but not yet received refunds, particularly beneficial for claims that are still under review to avoid penalties and interest on incorrect claims.

Modified Pension Plan Startup Tax Credit

The SECURE Act brings good news for businesses looking to start a pension plan. The Section 45E credit for employer contributions to small employer pensions has received a boost. If you have a workforce of 100 or fewer employees, you’re eligible to claim a tax credit of up to $5,000 for three years.

This change makes it more cost-effective to save for retirement for your team. The credit covers 50% of your eligible startup expenses. So, whether you’re considering a SEP, SIMPLE IRA, or a 401(k), it’s the perfect time to take action.

Net Operating Loss (NOL) Rules

Net operating losses represent the negative balance of a business’s taxable income, occurring when deductions exceed income in a given tax year. Businesses have the advantage of carrying forward NOLs to offset future income.

However, it’s essential to note the carryforward losses cannot exceed 80% of your taxable income with these carryforwards. This rule applies to losses incurred from 2021 onward.

The good news is that losses from 2018, 2019 or 2020 are not subject to the 80% limit. Understanding these NOL rules can be a game-changer for your business’s tax strategy, making it well worth delving into the details.

Excess Business-Loss Limitation Rules

The rules have changed for claiming business losses. In 2022, the annual threshold for most taxpayers was $270,000 ($540,000 for joint filers). In 2023, these thresholds were indexed for inflation and increased to $289,000 ($578,000 for joint filers).

This means that if business losses exceed these thresholds, the excess cannot be deducted in the current year but can be carried forward to offset future income. These rules aim to limit the amount of business losses that can be used to reduce taxable income.

Interest Expense Limitation Rule

The rules regarding the deduction of business interest expenses have been reinstated. Now, businesses can deduct interest expenses up to the total of their business interest income, 30% of their adjusted taxable income (ATI) and any floor plan financing interest expense.

Charitable Contributions Increased Limits Expired

In 2023, the special rules that allowed higher deductions for charitable contributions expired. The previously elevated limits are no longer applicable, and the standard limit was reinstated, allowing deductions of up to 60% of your adjusted gross income (AGI) for cash contributions.

Planning to donate? Keep this in mind to make the most of your generosity while staying tax smart.

2024 Tax Strategies for a Successful 2025 Season

Now that we’ve entered 2024, it’s crucial for businesses to proactively plan for the 2025 tax season. Staying ahead in the tax game not only ensures compliance but can also significantly enhance your financial health.

Here are key strategies for a successful and stress-free tax season in 2025:

• Accurate Record Keeping: Diligently track all financial transactions, including income and expenses. Good records are the foundation of effective tax planning and filing.
• Stay Informed about Tax Law Changes: Be aware of any changes in tax laws that could affect your business. This helps in maximizing benefits and staying compliant.
• Review & Adjust Estimated Tax Payments: Regularly review your income and make necessary adjustments to estimated tax payments to avoid underpayment penalties.
• Plan for Capital Gains and Losses: Strategically plan the sale of business assets to manage capital gains tax liabilities.

eeCPA’s Tailored Tax Support for Entrepreneurs

Busy entrepreneurs need a different level of business accounting and tax support. As a full-service CPA firm, we can become an extension of your team, so you can stop spinning all the plates and focus on growth.

We offer personalized solutions for entrepreneurs including business tax planning, tax controversy management and sales tax filings that work for your business. Explore our comprehensive suite of services for entrepreneurs and feel free to contact us today to discuss how we can assist you with your unique business tax-planning needs.