Latest Tax News for Small Business
Tax Relief for Small Businesses:
In 2017, NFIB and others worked with Congress to provide significant tax relief for small businesses. A survey on these tax changes confirmed that the overwhelming majority (78%) of small business owners believe the 2017 tax relief had a positive effect on the economy, prior to the COVID-19 pandemic.
Small Business Deduction
The centerpiece of the pro-small business tax changes is Section 199A, the Small Business Deduction. Approximately 75% of NFIB members are organized as pass-throughs (S corporations, LLCs, sole proprietorships, or partnerships), not as C corporations.
Pass-through business owners (S corporations, LLCs, sole proprietorships, or partnerships) – regardless of the type of business they own – can claim up to a 20% tax deduction on their share of the business’ income up to $170,050 in tax year 2022 and $340,100 for those filing jointly. For the 2023 tax year, pass-through business owners can deduct 20% of their income, capped at $182,100 (individual) or $364,200 (joint). For small business owners whose qualified business income exceeds the threshold, the deduction is subject to formulaic limitations. You can still benefit from the deduction if your business is employee intensive or you make capital expenditures.
More than 81% of small business owners believe the Small Business Deduction is important to the health of their business. However, without additional congressional action, this important small business provision is scheduled to expire after 2025 alongside other helpful tax benefits. Read more about the Small Business Deduction here.
The Main Street Tax Certainty Act makes this critical deduction permanent. Please ask your Representative or Senators to co-sponsor this crucial legislation and be an advocate for small business tax relief.
Standard Tax Deduction
In 2018, the standard deduction nearly doubled to simplify filing taxes for Americans. For tax year 2022, the standard deduction is $12,950, or $25,900 if you’re filing jointly. For tax year 2023 it’s $13,850 (individual) and $27,700 (joint).
Small business owners were already able to immediately deduct some of the costs of equipment purchased for use in their business. The maximum deduction in tax year 2022 is $1.08 million and the 2022 spending cap for purchases is $2,70 million. For tax year 2023 the maximum deduction is $1.16 million and the spending cap for purchases is $2.89 million. Unlike other tax relief, Section 179 is permanent.
Eligible assets that depreciate over time are now eligible for “bonus expensing” where instead of expensing a fraction of the price per year of use, you can expense the entire purchase at once. Bonus expensing phases out in 2024.
Arizona small business owners Brad and Hilary Scott spoke out on receipts taxes and other issues in 2019.
Family and Medical Leave Tax Credit
The TCJA provides eligible employers who offer paid family and medical leave to their employees a tax credit for tax years 2018 and 2019. The Consolidated Appropriations Act of 2022 (CAA) extends this helpful credit through 2025. Additional information from the IRS is available here.