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Business Tax Services

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Year-End Spending Package Tackles Retirement Planning, Conservation Easements

On December 23, 2022, Congress passed the Consolidated Appropriations Act of 2023. The sprawling year-end spending “omnibus” package includes two important new laws that could affect your financial planning: the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act (also known as SECURE 2.0) and the Conservation Easement Program Integrity Act.

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What are the 2023 Tax Rates and Deductions?

Individual Tax Rate

Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket increases by $725, to $1,450, depending on filing status, but the top of the 35% bracket increases by $22,950 to $45,900, again depending on filing status.

2023 Ordinary-Income Tax Brackets
Tax Rate Single Head of Household Married Filing Jointly or Surviving Spouse Married Filing Separately
10% $0 - $11,000 $0 - $15,700 $0 - $22,000 $0 - $11,000
12% $11,001 - $44,725 $15,701 - $59,850 $22,001 - $89,450 $11,001 - $44,725
22% $44,726 - $95,375 $59,851 - $95,350 $89,451 - $190,750 $44,726 - $95,375
24% $95,376 - $182,100 $95,351 - $182,100 $190,751 - $364,200 $95,376 - $182,100
32% $182,101 - $231,250 $182,101 - $231,250 $364,201 - $462,500 $182,101 - $231,250
35% $231,251 - $578,125 $231,251 - $578,100 $462,501 - $693,750 $231,251 - $346,875
37% Over $578,125 Over $578,100 Over $693,750 Over $346,875

 

Standard Deduction

  • Single: $13,850
  • Head of Household: $20,800
  • Married Filing Jointly: $27,700
  • Married Filing Separately: $13,850

Alternative Minimum Tax (AMT)

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. For 2023, the threshold for the 28% bracket will increase by $14,600 for all filing statuses except married filing separately, which increased by half that amount.

2023 AMT Brackets
Tax Rate Single Head of Household Married Filing Jointly or Surviving Spouse Married Filing Separately
26% $0 - $220,700 $0 - $220,700 $0 - $220,700 $0 - $110,350
28% Over $220,700 Over $220,700 Over $220,700 Over $110,350

 

  • The AMT exemption phaseouts are also indexed for 2023:
    • Single or Head of Household: $81,300
    • Married Filing Jointly: $126,500

Estate and Gift Tax Exemption

The lifetime exemption is $12,920,000 with a top tax rate of 40%. A surviving spouse may be able to use the deceased spouse’s unused estate tax exemption. The annual gift tax exclusion is $17,700 per recipient.

Education and Child-Related Breaks

  • The American Opportunity Credit: Maximum credit per eligible student is $2,500 and is phased out for taxpayers with adjusted gross income in excess of $80,000 single/$160,000 joint filers.
  • The Lifetime Learning Credit: Maximum credit is $2,000 per tax return and is phased out for taxpayers with adjusted gross income in excess of $80,00 0single/$160,000 joint filers.
  • The Adoption Credit: Maximum credit is $15,950 with phaseout ranges from $239,230-$279,230 for joint, head-of-household and single filers. Married couples filing separately generally aren’t eligible for these credits.

Social Security Wage Base Increase for 2023

The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $160,200 for 2023 (up from $147,000 for 2022). Wages and self-employment income above this threshold aren’t subject to Social Security tax.

There’s a maximum amount of compensation subject to the Social Security tax, but no maximum for Medicare tax. For 2023, the FICA tax rate for employers is 7.65% — 6.2% for Social Security and 1.45% for Medicare (the same as in 2022).

2023 Updates:

For 2023, an employee will pay:

  • 6.2% Social Security tax on the first $160,200 of wages (6.2% of $160,200 makes the maximum tax $9,932.40), plus
  • 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
  • 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return)

For 2023, the self-employment tax imposed on self-employed people is:

  • 12.4% Social Security tax on the first $160,200 of self-employment income, for a maximum tax of $19,864.80 (12.4% of $160,200), plus
  • 2.9% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a return of a married individual filing separately), plus
  • 3.8% (2.9% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return)

Retirement Savings Changes for 2023

The IRS recently announced cost-of-living adjustments that apply to the dollar limitations for pensions, as well as other qualified retirement plans for 2023. The amounts increased more than they have in recent years due to inflation.

401(k) Plans

The 2023 contribution limit for employees who participate in 401(k) plans will increase to $22,500 (up from $20,500 in 2022). This contribution amount also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.

The catch-up contribution limit for employees age 50 and over who participate in 401(k) plans and the other plans mentioned above will increase to $7,500 (up from $6,500 in 2022). Therefore, participants in 401(k) plans (and the others listed above) who are 50 and older can contribute up to $30,000 in 2023.

SEP Plans and Defined Contribution Plans

The limitation for defined contribution plans, including a Simplified Employee Pension (SEP) plan, will increase from $61,000 to $66,000. To participate in a SEP, an eligible employee must receive at least a certain amount of compensation for the year. That amount will increase in 2023 to $750 (from $650 for 2022)

SIMPLE Plans

Deferrals to a SIMPLE plan will increase to $15,500 in 2023 (up from $14,000 in 2022). The catch-up contribution limit for employees age 50 and over who participate in SIMPLE plans will increase to $3,500 in 2023, up from $3,000.

Other Plan Limits

The IRS also announced that in 2023:

  • The limitation on the annual benefit under a defined benefit plan will increase from $245,000 to $265,000. For a participant who separated from service before January 1, 2023, the participant’s limitation under a defined benefit plan is computed by multiplying the participant’s compensation limitation, as adjusted through 2022, by 1.0833.
  • The dollar limitation concerning the definition of “key employee” in a top-heavy plan will increase from $200,000 to $215,000.
  • The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period will increase from $1,230,000 to $1,330,000, while the dollar amount used to determine the lengthening of the five-year distribution period will increase from $245,000 to $265,000.
  • The limitation used in the definition of “highly compensated employee” will increase from $135,000 to $150,000.
IRA Contributions

The 2023 limit on annual contributions to an individual IRA will increase to $6,500 (up from $6,000 for 2022). The IRA catch-up contribution limit for individuals age 50 and older isn’t subject to an annual cost-of-living adjustment and will remain $1,000.

What are the 2022 Business Tax Rates and Credits?

Corporate Tax Rate:

21%

Estate and Gift Tax Exemption:

The lifetime exemption is $12,060,000 with a top tax rate of 40%. A surviving spouse may be able to use the deceased spouse’s unused estate tax exemption. The annual gift tax exclusion is $16,600 per recipient ($32,300 if spouses elect “split-gift” treatment.

Section 199A Deduction for Owners of Pass-Through Entities:

Up to 20% of qualified business income is subject to various limitations. When an owner’s taxable income exceeds $170,050 ($340,100 for joint filers), the following limits are phased in over a $50,000 range ($100,000 range for joint filers): More information

  • Deduction isn’t available for income from specified service businesses.
  • Deduction can’t exceed the greater of the owner’s share of:
  • 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
  • The sum of 25% of W-2 wages plus 2.5% of the cost of qualified property.

Bonus Depreciation

Now applies to both new and used items (if the used items are placed in service for the first time in the business). 100% bonus depreciation on qualifying business equipment is through 2022.

Research & Development (R&D) Credits

Federal tax credits that allow up to 10% of eligible expenses that relate to a new or improved process or product. Credits can be utilized to offset income tax, or if eligible, employer-paid payroll taxes. Additionally, any credit can be carried back one year or forwarded up to 20 years. For more information, view our Biz Tip on R&D Tax Credits.

The Section 179 Deduction

Applies to tangible personal property, such as machinery and equipment, purchased for the business.

  • Section 179 Expensing Limit: $1,080,000
  • Section 179 Phaseout Threshold: $2,700,000
  • This deduction is also available for qualifying tangible personal property such as furniture and appliances, as well as some nonresidential real property such as roofs, ventilation, fire protection, and security systems. Read more on Section 179

Work Opportunity Tax Credit:

If you hire individuals from a specified disadvantaged targeted group, you could be eligible for a credit worth 25-40% of their wages through 2025. Find more information on the tax credit extension.

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Services Offered: How SVA Can Help

Business professionals need easy access to information to make timely decisions. SVA has what you need, when you need it. Choose a topic below or just contact us directly. Our expertise is ready anytime you need it.

The best way to stay current on all the ways your business can save time and money is to enlist an experienced accounting firm. SVA can help you with:

  • Accounting Methods
  • Consolidated Multi-Entity Tax Returns
  • Entity Selection, Formation, and Structure Planning
  • Executive Compensation Models
  • Inventory Method Planning
  • Ownership Planning

Tax planning should occur all year long, not just at year-end. SVA’s tax team is always in the know about the latest legislation and will help you minimize your business tax burden. Along with all the tax credits listed above, SVA can also help you with:

The tax-deferred exchange remains the most important tool in planning for non-personal real estate transactions. The 1031 exchange is a swap of one investment property for another, allowing capital gains to be deferred. We work with clients to navigate the many rules and regulations that affect these transactions. We also will act on our clients’ behalf to arrange and act as a liaison between the various other professionals required to complete the transaction according to strict IRS rules.

BIZ TIP: Defer Capital Gains on Investment Properties With a 1031 Like-Kind Exchange

Everyone is familiar with sales tax and the role it plays as a consumer. However, understanding the complexities and laws involved with sales and use tax as it applies to business is another story. Reduce the impact of sales tax on not only your business but your customers by proactively planning for the tax consequences of your business-related activities.

There are many tax credits currently available, along with new ones available each year based on stimulus legislation and changing presidential leadership. Here are a few SVA can help you with:

  • Energy/Fuel Tax Credits
  • Low-Income Housing Tax Credits
  • New Markets Tax Credits
  • Rehabilitation Tax Credits
  • Research and Development Tax Credits
  • State Tax Credits
  • Wisconsin Manufacturing Tax Credits

Nexus, also known as sufficient physical presence, determines whether an out-of-state business selling products into a state is liable for collecting sales and use tax on sales into the state. Nexus is required before a taxing jurisdiction can impose its taxes on an entity. Congress enacted Public Law 86-272 which protects companies with only minimal state activities from being taxed. Our professionals can assist you in determining your company's multistate tax situation, take steps to insulate your activities from overzealous states, and minimize your overall state tax liability.

Biz Tip: What Manufacturers Should Know in the Wake of Wayfair Vs. South Dakota

Paycheck Protection Program (PPP) funds provided billions in economic relief for businesses. The program includes round 1 funding, round 2 funding and loan forgiveness opportunities. Each round has specific guidelines and determining when to apply for funds and forgiveness requires talking with a tax expert. Navigating the other credits like the Employee Retention Credit that work together with the PPP funds can be complex. SVA has a team of experts who consistently monitor the latest news regarding these programs from the SBA and legislative efforts.

Resources

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The Definitive Guide to Business Tax Credits and Tax Deductions

This eguide covers different tax credits and deductions available to businesses, as well as what to look for in a tax advisor, choosing a tax-advantaged business entity and more!

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SVA® Web Tax Guide

Visit SVA’s Web Tax Guide to access a wide array of resources that can help prepare you and your business for the upcoming tax season.

2022 Federal Tax Rates

2022 Federal Tax Rates

This easy-to-use resource has all the tax rates, deductions, credits and limits in a quick view format.

Awards and Affiliations

Forbes Names SVA as 2021 America's Best Accounting Firms
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