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Tax Tips For Small Business Owners as the 2023 Tax Season Begins

Tax Tips For Small Business Owners as the 2023 Tax Season Begins

With the 2023 tax filing season officially starting on January 23, 2023, it’s time for small business owners to get everything in order to file their returns.

Tax time can be stressful no matter what kind of company you operate or how long you’ve been an entrepreneur. The IRS makes alterations to the tax code every year, so it can be tough to keep up, even if you’re a seasoned business owner with decades of experience under your belt.

Fortunately, there are some things you can do to make the 2023 tax filing process the easiest one you’ve ever had. Here, we provide some helpful tips.

Take full advantage of tax deductions

The IRS offers numerous tax deductions to help business owners save money and reduce their tax liability. Knowing what all of these deductions are, though, is next to impossible unless you personally study the tax code on a regular basis.

Working with a qualified tax professional in your area is key to getting the most out of the deductions for which you are eligible, but it’s also wise to do your own research. The better educated you are about business taxes, the less stressful tax season will be for you in the future.

The qualified business income (QBI) deduction, for example, allows pass-through business owners to take a large deduction worth up to 20% of their share in their company’s income – but there are numerous restrictions.

For instance, owners of some specified service trades or businesses (SSTBs) are ineligible if their income is too high.

Examples of these SSTBs include:

  • Law firms
  • Doctor’s offices
  • Professional athletes
  • Performing artists/stage actors
  • Accountants and financial advisors

Again, if you have questions about small business tax deductions, talk to your tax preparer.

Defer and accelerate income to your advantage

Deferring and accelerating income are both excellent tactics that can be used to legally reduce your tax liability. If you use the cash method of accounting – which most small businesses do – you don’t recognize income until payments actually change hands.

This is where the tax strategies of deferring and accelerating income come into play.

If you and your tax professional expect that you will be in a lower tax bracket next year, for instance, you might want to defer income. One example of this would be a graphic design firm billing a high-paying client in January, rather than in December.

On the other hand, if you expect to be in a higher tax bracket – or your tax preparer anticipates that tax rates will increase across the board – you might want to earn as much income as possible in the current tax year.

Give your employees a helping hand

The majority of small business owners offer basic benefits, such as paid time off (PTO) and health insurance packages, to their employees.

However, what you might not realize is that the more benefits you offer, the less money you are likely to owe on taxes. This is not only advantageous for you as a business owner but it increases employee morale and encourages your staff members to stay with you for the long haul.

One benefit that relatively few companies offer – but you might want to consider – is student loan payoff assistance. The CARES Act, signed into law in 2020, included a provision that gives employers the right to assist their employees with student loan payments.

Prior to this law, if an employer repaid part of an employee’s student loans, the payoff was considered taxable income for the employee. The CARES Act, however, includes an exception that allows employers to receive a payroll tax exemption for making payments towards employees’ student loans and excludes the repayments from workers’ taxable income.

This is a win-win for small business owners who can afford to help their employees with student loan repayment. The provision will remain in effect through 2025.

These are just three helpful tips to set you up for success as the 2023 tax filing season gets underway. Remember, your tax professional is the best resource you have at your disposal this time of year – only they know the ins and outs of your business finances almost as well as you do!

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

Steward Financial Services
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