Business Tax Changes

There will be a few tax changes for businesses of note for the tax year 2023 and beyond, including a huge 2017 TCJA tax benefit that will begin to phase out at the end of 2022. Additionally, 100% bonus depreciation will be reduced to 80% for 2023 and then incur a 20% reduction every year following until the bonus depreciation is completely phased out in the year 2027. Other highlights include:

Business meal deduction back to pre-COVID: Thanks to the Consolidated Appropriations Act in 2020, business-related restaurant meals for the tax years 2021 and 2022 were temporarily increased to 100% deductibility to help restaurants recover financially from the pandemic. Starting in 2023, this temporary increase is over, and the meals deduction goes back to the regular 50% deduction. the TCJA also made entertainment 100% non-deductible (except for certain entertainment such as a company-wide party), entertainment, – is still 100% non-deductible in 2023.

Net operating loss limitations: Net operating losses (NOLs) generated in 2022 are limited to 80% of taxable income and are not permitted to be carried back. Any unused NOLs are carried forward subject to the 80% of taxable income limitation in carryforward years.

Business loss limit increases: A non-corporate taxpayer may deduct net business losses of up to $270,000 ($540,000 for joint filers) in 2022. The limitation is $289,000 ($578,000 for joint filers) for 2023. A disallowed excess business loss (EBL) is treated as an NOL carryforward in the subsequent year, subject to the NOL rules. With the passage of the Inflation Reduction Act, the EBL limitation has been extended through the end of 2028.

Small business threshold: The threshold for “small business” qualification has increased from $27M in 2022 to $29M in 2023. This may be relevant for certain C-Corps to use cash basis & other provisions like exemption from §163(j) limitation etc.

Social security wages: Social security wage base increases from $147,000 in 2022 to $160,200 in 2023. Keep an eye on the first payroll of 2023 to ensure the limits are set appropriately.

Please contact your friendly HM&M advisor if you have any questions.