Last updated on October 25th, 2023
In the blink of an eye we’re in the last quarter of 2023. Don’t blink again or you’ll miss the time remaining in the year to make decisions that can impact your tax liability. Instead, take a few minutes to consider deductions and tax credits you may be eligible for. Even better, call your RBT CPAs contact to talk through your options and plans. For now, here are highlights of some opportunities to consider…
Will you be eligible for a Qualified Business Income (QBI) deduction?
Eligible small businesses include includes sole proprietorships, partnership, S corporations, Limited liability companies. For 2023, total taxable income must be under $182,100 for single taxpayers and $364,200 for married taxpayers filing jointly. Businesses with taxable income exceeding those limits may qualify for a partial deduction if taxable income is under $232,100 for single taxpayers and $464,200 for married taxpayers and other tests are met.
For tax years beginning on or before December 31, 2025, the QBI (a.k.a. Section 199A) deduction allows eligible small business owners and self-employed individuals a tax deduction of 20% of their QBI plus 20% of qualified real estate investment trust dividends and qualified publicly traded partnership income. That’s in addition to the standard deduction.
Do you need new equipment?
Internal Revenue Code Section 179 gives you incentive to consider it. If you buy or lease (with qualified financing) appreciable business equipment, you can deduct the full purchase price (or lease amount) from your gross income. Equipment can include office machinery, furniture, vehicles, computers, and more. The item must be new to your business, used for business purposes, and put in service the year that you take the deduction. The most you can deduct under Section 179 for 2023 is $1,160,000. There’s also an 80% first year bonus depreciation for 2023, so you can reduce your tax liability even more.
Have you increased research and development?
You can take a credit to reduce your income tax liability and, under the Inflation Reduction Act, apply up to a $500,000 credit towards payroll taxes for Social Security and FICA. At the same time, it’s important to know that all Section 174 expenses, including R&E for software development, must be amortized over a five-year period (15 years for research conducted outside the U.S.). Before this change, R&E expenses could be immediately deducted from taxable income. So, your tax liability will likely change and may increase significantly.
Have you invested in solar power or energy-saving facility upgrades?
Receive a tax credit for up to $5/square foot for energy efficiency improvements – including but not limited to interior lighting, business envelop, HVAC or hot water systems – that reduce energy and power costs. In addition, if you switch over to low-cost solar power, you may be eligible for a tax credit equal to 30% of the cost of switching.
Should you adopt a new retirement plan?
If eligible, you can claim a tax credit of up to $5,000 for three years for the costs to start, administer, and educate employees about a SEP, Simple IRA, or other qualified plan. What’s more, as noted on the IRS website, “You can claim the credit for each of the first 3 years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.”
Deciding whether to take action to reduce tax liabilities and how isn’t simply black and white. It does depend on your short- and long-term business goals, and other variables. That’s why it’s best to speak with your RBT CPAs client manager. He/she can help you understand your options and the implications of any move you make, so you’re in the best position to maximize opportunities that may be available to you in 2023. For more information, give us a call today.
RBT CPAs is proud to say all our work is prepared in the U.S.A. – we never offshore. As a result, you get peace of mind that your operation’s financial and confidential information is handled by full-time, local staff who have met our high standards for quality, ethics, and professionalism.