2023 Business Tax Saving Tips: Ways To Save on Taxes for Your Business

Check out business tax-saving tips that employers can utilize in 2023 to reduce their taxes and help guide their employees. Stay informed with Paychex.

With the new year underway, the inevitability of taxes may be top of mind for you and your employees. While you may be wondering about small business tax saving tactics, your employees may be wondering how to save on taxes themselves. For employers, options include maximizing deductions and credits, sheltering revenue, and contributing to employee benefit plans. Planning ahead with the following business tax-saving tips may help you and your staff yield savings this year.

8 Tax Saving Tips for Your Business

Throughout the year you may wonder, "How do I maximize my business tax return?" It's possible to rein in your tax expenses in with a number of strategies. Note that you may want to consult your company tax expert for more information.

• Ensure that you're taking every deduction and using every tax credit available. If you don't already use an experienced tax preparer — one who keeps abreast of complex and fluid tax laws — it's likely a worthwhile business expense.
• Shelter revenue from profits in a qualified retirement plan that gives a tax deduction for your contributions, and defers taxes on earnings until you withdraw from the plan.
• Consider an accountable plan to save the company and employees on taxes if you reimburse staff for using personal vehicles for company business and other business-related expenses (e.g., internet access for remote employees). IRS Publication 463 describes accountable plans and their use.
• Ensure that your business is structured properly. Can you gain tax advantages as a C corporation or another structure? Your company's structure determines the tax rates paid on profits.
• If possible, increase your contribution to workers' health insurance premiums. Doing this in lieu of salary raises means that you and your employees save the attendant income, FICA, and additional Medicare taxes on bigger paychecks.
• Offer to match a percentage of employee contributions to the company 401(k) plan — the business's share is deductible. You'll save on taxes and your workers will have increased financial security.
• If it fits your company, establish a section 125 benefit plan, which allows employees to pay medical and dental premiums with pre-tax dollars and set aside pre-tax funds for qualified medical and dependent-care costs. A section 125 flexible spending account saves both employees and employers FICA taxes that would otherwise be due on wages contributed to these accounts, plus employees may save federal, state, and local taxes.
• Review tax elections that can be made after the year ends to minimize taxes. A business that purchased equipment has a number of choices on how to write-off the cost on the business tax return; the decision must be made when the return is filed. The cost of business driving can be deducted using the actual costs involved or relying on an IRS-set rate.

Important Dates in 2023 for Taxes

In addition to maximizing tax deductions, stay on top of tax filing and other important deadlines throughout the year. Keep in mind the following dates as you plan and look for tax savings in 2023:

How Can Business Owners Help Employees Save on Taxes?

Employers want to help their employees in every way possible, including assistance with tax savings. Consider helping workers to reduce what they owe the IRS throughout the year by:

• Adopting automatic enrollment for 401(k) plans. Their pretax contributions reduce reportable income, which means they have a potentially lower income tax bill. Employers may be eligible for a tax credit for using this plan arrangement.
• Offering deferred compensation arrangements. They enable employees to postpone the receipt of bonuses or other designated amounts—and the income taxes on them—until retirement.
• Reminding employees to use up flexible spending account funds (FSA). These accounts let employees set aside pretax money to offset healthcare or childcare expenses. As an employer, you can opt for the IRS-permitted grace period, allowing workers to spend their 2022 accounts balances up to March 15, 2023. Alternatively, you can offer a limited healthcare FSA carryover of unused amounts from 2022 to 2023.

Tax Law Changes for 2023

While you may be focused on preparing your 2022 return, many people will want to understand tax changes that have occurred as a result of legislation as well as expiring rules, and how this could impact their 2023 returns that are filed in 2024 as well as 2023 estimated taxes (the first installment of which is due April 18, 2023). A few notable items include the following:

• Inflation adjustments: Income tax brackets, eligibility for certain tax deductions and credits, and the standard deduction have adjusted to reflect inflation. This means that the standard deduction on the 2023 return is:
  • $27,700 for married couples filing jointly and surviving spouses
  • $13,850 for individual taxpayers and married individuals filing separately
  • $20,800 for taxpayers filing as head of household

There's an additional standard deduction amount for those age 65 and older and another for those who are blind.

• Green energy actions: Provisions in the Inflation Reduction Act continued the tax credit for making certain energy improvements to a residence as well as retaining a higher credit for adding solar panels or other alternative energy property. The measure also introduced a "final assembly requirement" for claiming a clean vehicle credit when buying an electric vehicle on or after August 16, 2022.
• Retirement plan distribution changes: Provisions in the CARES Act allowed individuals impacted by COVID-19 to withdraw up to $100,000 of retirement assets in 2020 without penalty. Taxpayers who opted to spread it equally over three years (i.e., 2020, 2021, and 2022 tax returns) must include the final portion on their 2022 return. If some or all of the distribution was repaid in 2022 and the three-year spread was used, amended returns for 2020 and 2021 are needed to obtain a refund of taxes paid for those years. For those who must take required minimum distributions (RMDs), new IRS tables reduce the amount that must be taken. Reminder: Those attaining age 72 in 2022 and did not take their RMD by December 31, 2022, must do so by April 1, 2023, to avoid a penalty.

Plan for Ways To Save on Taxes for Small Business in 2023

Waiting until to the last minute to focus on year end business tax planning and tax saving strategies can bring stress to you and your employees. Fortunately, the start of the year is a great time to consider the many small business tax strategies as well as individuals that are available. New tax rules that become effective this year can mean even greater business tax savings. Work with a tax services expert to help identify and maximize opportunities to save money.