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2023 Tax Planning Guide

More Notable Considerations

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For 2022, the limit for Section 179 expensing on eligible property is $1,080,000 and phases out completely at $2,700,000. In 2023, the limit is $1,160,000 and phases out at $2,890,000.

Within these guidelines, Section 179 also allows for immediate 100% expensing of qualified improvement property placed in service from tax years 2018 through 2022. This provision begins to phase out in 2023, when there is a maximum of 80% expensing allowed. Improvements include:

  • Any improvement to a building’s interior, but not building enlargements, elevators and escalators, or changes to the internal structural framework of the building, and

  • Roofs, HVAC, and security and fire alarms.

The amount of bonus depreciation percentage you can use for qualified property acquired and placed in service after September 27, 2017 until January 1, 2023 is now 100%. In 2023, the bonus depreciation percentage drops to 80%. Talk to your tax professional to get the specifics, of which there are many.

The Work Opportunity Tax Credit provides an incentive for employers to hire long-term unemployed individuals (i.e., those unemployed for 27 weeks or longer). Generally, the credit is equal to 40% of the first $6,000 in wages paid out to the newly hired worker.

The Empowerment Zone Tax Incentive program, which was designed to incentivize business investment and job growth in certain economically disadvantaged areas, is available through December 31, 2025. The program may entitle you to expanded Section 179 deduction allowances, potential deferral of capital gains and the ability to finance projects using certain tax-exempt bonds.

Depreciation limits increased in 2022 for passenger vehicles placed in service between September 27, 2017 and December 31, 2022. If the taxpayer doesn’t claim bonus depreciation, limits range from $19,200 in the first year to $5,860 for years four and beyond. The deduction begins to phase out in 2023.

Through 2025, amended IRC Section 163(j) limits corporations’ business interest expensing to any business interest income, plus 30% of the business’ adjusted taxable income. The limit does not affect small businesses that averaged less than $27 million in annual gross receipts for the three previous tax years in tax year 2022 and $29 million for 2023.

For 2021 and 2022, business meals from restaurants were 100% deductible, but will revert back to 50% deductible in 2023. Entertainment expenses remain non-deductible.

If your average annual gross receipts were $29 million or less in the three previous tax years, you can choose either a cash or accrual method of accounting in 2023. In 2022, the limit was an average of $26 million or less.

If your gross receipts exceed that threshold, you must use the accrual method. For more information about the advantages and disadvantages of each method, speak with your tax professional, or see IRS Publication 538 – Accounting Periods and Methods.

Employers had the flexibility to allow employees to carry over any unused flexible spending or dependent care account monies as of December 31, 2021 to use in 2022. Typically, these accounts are “use it or lose it” with no rollover provisions. In 2023, employers may allow employees to contribute up to $3,050 to a health FSA.


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