Save Money, Save Time: Essential Tax Updates for Small Businesses

There are several considerations small company owners should make for their tax file this year as Tax Day draws near.

There are several considerations small company owners should make for their tax file this year as Tax Day draws near.
(Photo : Scott Olson/Getty Images)

For many small companies, the yearly tax deadline is still April 15. However, unlike people, small businesses may have different deadlines based on their particular business structure, the state in which their taxes are filed, and other variables. Throughout the year, quarterly anticipated tax payments are often needed. Additionally, a few categories of small enterprises needed to submit by March 15.

The majority of experts advise small company owners to deal with a professional tax consultant rather than attempting to file on their own or even using tax-filing software due to the complexity of business tax filing.

It's crucial for small company owners to be aware of any changes to the tax code throughout the year, even if they don't file taxes themselves. The deadline of April 15th is approaching, therefore small company owners should think about the following.

Mitch Gerstein, senior tax counsel at accounting firm Isdaner & Co., suggested filing for an extension because of some tax legislation that is now pending in Congress. Although the final paperwork isn't due until September, you still have to pay estimated taxes when you request for an extension.

This allows enough time for your tax provider to submit a return. Furthermore, filing an extension is less expensive than filing an amended return, which entails higher administrative expenses.

Gerstein suggests an extension this year in part because the bonus depreciation write-off that many small firms rely on is scheduled to disappear in 2023. In order to encourage capital expenditures, firms were given the opportunity to write off 100% of specific new and used assets in 2022 under the bonus depreciation allowance.

However, for used assets, it will reduce to 80% starting in 2023 and then by 20% year after that. Congress is currently considering a tax measure that would raise the write-off to 100%. According to Gerstein, large tax bills like this one that are still pending in Congress are uncommon when taxes are due.

Enhance Your Retirement Strategy

Congress enacted the Secure Act 2.0 in late 2022, which offers small firms certain tax benefits if they have a retirement plan. For small enterprises launching new employee plans, there is a tax credit. The credit is available for a new 401(k) plan adoption and maintenance up to 100% of the initial expenditures, with a $5,000 maximum. Additionally, for the plan's first five years, each employee is eligible for a tax credit of up to $1,000 depending on their employer's contribution.

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Variations in Write-Offs for Research and Development

Chief operating officer of Kruze Consulting Scott Orn works with venture capital-backed firms. According to Orn, the most common issue his customers bring up is "Section 174," a tax law provision that allows research and development expenses to be written off.

Research and development costs could formerly be fully written off by businesses against their taxable revenue. That was advantageous since, in most cases, the deduction implied that the business was losing money and would not be required to pay taxes.

However, as a result of new laws, businesses had to "capitalize" the cost, or spread it over a number of years, beginning in 2022. This implies that companies will now have to deduct the costs over a period of five years for research and development conducted in the United States and fifteen years for research and development conducted elsewhere.

The move has an impact on both large and small enterprises, although Orn stated that small businesses are more negatively impacted.

Prevent Underpayment Fines

This year, underpayment will cost small company owners even more, which is another incentive to hire a tax professional. Underpayment penalties used to be about 3%, but this year they are more than twice as high at 8%. This is because, according to Danny Castro, Florida Market Tax Leader at BDO USA, a division of BDO worldwide, a worldwide accounting network, the penalties are calculated using the federal short-term interest rate plus three percentage points.

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