What Your Small Business Needs to Know for Tax Season 2023

With only a few weeks left until the tax deadline, now is the time for Americans to prepare by gathering documents, reviewing this year’s tax obligations and responsibilities, and considering available deductions.  This year’s tax deadline is Tuesday, April 18th. You get an extra day because April 15th falls on a Saturday, and Emancipation Day will be observed in our nation’s capital on the following weekday, Monday, April 17th. 

With a record-breaking number of Americans starting their own small business over the last two years, many of them will be filing for the first time as self-employed.  According to Small Business Administration (SBA) and U.S. Census Bureau data, 10.5 million total new entrepreneurs, small businesses, and gig workers have stepped out on their own.  

As the nation’s largest membership association for self-employed and micro-business owners, we welcome the migration of Americans out of W-2 employment and into entrepreneurship. However, there are changes to the tax code every year and self-employed individuals and small business owners must be up to date on those changes to ensure filing the most beneficial income tax return.  

Every year, the IRS updates the tax code with relevant changes that could impact a filer’s tax return, and ultimately have a major influence on their bottom line. From an increased standard deduction to a more beneficial mileage reimbursement, these changes can result in more dollars in your pocket. The IRS has already announced an annual inflation adjustment to the tax brackets as part of the 2023 tax year, which should benefit even more filers next year. 

Although the annual inflation adjustment won’t go into effect until next year’s returns, there are still some major updates and reminders that individuals should consider as they prepare to file their 2022 income tax return:

The tax filing deadline is Tuesday, April 18th, 2023. New changes to the tax system:

• A lower individual rate, which is where most self-employed small businesses file.

• An increase in the standard deduction, which is $12,950 for single filers and $25,900 for married couples.
• Reduction or elimination of specific deductions such as for moving expenses or the unlimited state and local tax deductions known as SALT deductions, which are now capped at $10,000.
• A streamlined, standard home office deduction is available.
• The standard mileage rate for business use of an automobile is 58.5 cents per mile through 6/31 for 2022 tax returns, up from 56 cents last year, and 62.5 cents from 7/1 through the end of 2022. (The rate for the 2023 tax season has been set at 65.5 cents per mile.)
• Limits for retirement plan contributions such as SEPs, IRAs and 401(k) plans may have changed for your situation. 

Don’t overlook hidden deductions – take the time to ensure you are filing the most beneficial return possible. From itemizing your deductions to a more streamlined home office deduction and claiming the use of your car for work purposes and the impact of retirement contributions, these options can impact your returns.  

Both the American public and the small business community can expect to benefit from this year’s key changes and updates aimed at saving both time and money.

The IRS’s tax return filing submission portal is open and accepting returns, and it is beneficial to you-and your wallet-to submit your return as early as possible. If you are owed a refund, you would get that cash or credit back earlier while avoiding delays; if you owe money, you have more time until the deadline to submit your payment or work with the IRS on a payment plan. 

With so many tax returns being submitted, evaluated, and processed, it’s important that all Americans-including the self-employed and micro-businesses with nine or less employees-not only file on-time, but do it correctly. Ensure your forms are correctly completed and all necessary documents are submitted. 

While the last few years were fraught with pandemic-era issues and delays, the IRS has already kicked off this year’s tax season in a stronger position by hiring and training new workers combined with better funding and enhanced technology. The IRS has said it is hoping to process returns this year on time and without much delay, anticipating processing more than 168 million individual tax returns during this year–which is where most of our nation’s smallest business community files.

Remember, you are not alone-there are resources available for help, including NASE.org, IRS.gov and SBA.gov, where information and assistance are available. Sit down with your coffee on a Saturday morning, and bookmark the websites on your computer or iPad, and return to them for support. 

If you’re close to the deadline and still cannot get your tax filing completed, apply for an extension with the IRS. It’s better to get official extra time rather than be fined a penalty for not filing on time.  Don’t forget that the automatic extension available to all taxpayers is an extension of time to file the return and not an extension of time to pay any that is due. If you expect to owe tax on April 18th, then take a good guess at what you think you might owe and send a check with your extension.