Tax Regulations & Policies to Know

Here are six regulations and policies to be aware of when filing taxes for year 2023:

1. Section 179 changes

Section 179 incentives small businesses to make operational improvements and cut overhead costs. Note however that 2022 was the last year businesses could deduct 100% of qualified expenses. In 2023, we begin the 20% decrease per taxable year until January 1, 2027. This means that for tax year 2023, the maximum deduction is 80%; in tax year 2024, this will drop to 60%, etc.

2. Mortgage interest deduction

For tax year 2023, mortgage insurance premiums are no longer treated as deductible mortgage interest. This primarily concerns businesses with property or brick-and-mortar locations. Publication 936 provides further guidance on the new rules for deducting mortgage interest.

3. Employee Retention Tax Credit (ERTC)

The CARES Act created the employee retention tax credit (ERTC), which provided specified employers a credit against employment taxes equal to 70% of qualified wages paid in a calendar quarter before January 1, 2022, up to $10,000 for each employee. The Infrastructure Investment and Jobs Act eliminated the credit for most businesses retroactive to September 30, 2021.

Retroactively claiming the credit:

Employers may file Form 941-X up to three years after the original payroll taxes were due, which is typically on April 15. Thus, employers may claim the 2020 ERTC until April 15, 2024, and the 2021 ERTC until April 15, 2025.

4. Business meals and entertaining deductions

The business meals tax credit was adjusted during the COVID-19 pandemic to encourage the support of restaurants, allowing businesses to temporarily deduct 100% of business meal expenses during tax years 2021 and 2022. For 2023, deductions have reverted to their pre-2021 state: Most business meals, including those provided during in-office meetings, conferences, and business travel, are now 50% deductible. Certain meals, including food for recreational employee events and customers or the general public, are 100% deductible. Entertainment expenses of all kinds are no longer deductible.

5. New Markets Tax Credit (NMTC)

The NMTC Program incentivizes private entities to invest in economically disadvantaged and distressed communities. This credit is currently active for 2023 but slated to expire at the end of 2025. Note however that bipartisan legislation has been proposed to make the NMTC permanent.

6. Employer credit for paid and family leave

This credit, originally initiated in the 2017 tax revision and previously extended through 2020, was once again extended through 2025. It can currently be claimed for all wages paid between the tax years 2018 and 2025.

7. Work Opportunity Tax Credit (WOTC)

The WOTC is available to employers that hire workers from targeted groups facing barriers to employment, including veterans, the previously incarcerated, and long-term recipients of family assistance or unemployment. This credit is still active for tax year 2023.

8. Tax inflation adjustments

The IRS’s annual inflation adjustments for tax year 2023 will impact several tax provisions. The standard deduction, for example, has increased to $13,850 for single taxpayers and $27,700 for married couples filing jointly. Depending on your structure, you may benefit from these adjusted provisions:

  • The Inflation Reduction Act extended select energy-related tax breaks for energy-efficient commercial buildings.
  • Companies that are LLCs or S corps qualify for the Section 199A deduction for qualified business income and can deduct 20% of business income. QBI limits have increased to $182,100 for individuals and $364,200 for couples filing jointly.
  • Small businesses that work international can benefit from an increase in foreing-earned income exclusion. Tax year 2023 sees a raise to $120,000 as compared to $112k in 2022
  • For businesses that give gifts, the annual exclusion has increased to $17,000 from $16k in 2022.

Federal Tax Deposit Rules

Effective January 1, 2011, federal taxes must be paid via Electronic Federal Tax Payment System (EFTPS®) unless you owe $2,500 or less with your quarterly Form 941. Details for enrolling in EFTPS are available at eftps.gov.