In most cases, tax obligations are confusing because they change frequently. As such, you must stay abreast with the latest tax laws and codes. For instance, the crucial tax legislation in 2018, aside from the Covid-19 legislation on close heels, caused many small businesses to realign their strategies. While some of these policies are still in place, few are slated to change shortly.
Everything you need to know about business taxes in the US
Let us find out more about the effect of US taxes on small businesses under the following sub-heads, namely,
- Types of business taxes
- How is it in 2022 Post Covid
- Taxes and Inflation
- Business Taxes in 2023
Let us take one sub-head at a time.
Types of business taxes
State and Federal taxes are mostly what the individuals are concerned about. But as far as business owners are concerned, the following five categories of taxes might be the ones that you will see included in their financial tax regime.
The Internal Revenue Service requires that every business, excluding the ones that run on partnerships, is entitled to file its annual tax return, and the partnership businesses must file a so-called information return.
You must pay quarterly estimated tax payments to cover income tax on that income that is not subject to withholding and tax for self-employment. If the estimated payment that you assess falls short of the annual tax liability, you are expected to pay the penalty.
If you have employees, you must inform the tax authority and deposit details related to Medicare (FICA) taxes, Social Security, federal income tax withholding, and Federal Unemployment FUTA tax.
This type of tax applies to the sole proprietors and the general partners that belong to the members of the limited liability firms with coverage of Medicare taxes and Social Security.
Businesses must collect the taxes and remit the same to the states where they do business.
Let us now find out how it was for the business during the Covid-19 pandemic in the paragraph below.
How is it in 2022 Post Covid?
We are still in 2022, and just a few weeks to go for us to hear the choir of jingle bells everywhere. The following changes were in effect for 2022. And you will know what these changes mean for your small business in the present year. The changes that are still in effect are as follows-
Deferred Social Security Taxes
Coming to the tax year of 2020, the CARES Act or the Coronavirus Aid, Relief, and Economic Security had let employers defer their portion of deposits of the Social Security taxes due between the periods March 27, 2020, and December 31, 2021, and the remainder is due on December 31, 2022.
Unless you have made payments for the first half, the IRS will consider all the other deferral invalid and will impose penalties after assessment on all deferred taxes by using the original due date.
Employee retention tax credit
The Infrastructure Investment and Jobs Act canceled the 2021 fourth-quarter employee retention tax credit. Unless you have made claims for this credit of Q4, you cannot do so. Alternatively, if you have already claimed, you may attract a penalty unless you deposited the taxes on or before December 20, 2021, with Form 941 or by January 31, 2022.
Net operating rules
If your business registered a net operating loss in 2018, 2019, and 2020, and one that you have carried forward to 2021, it would be 80% of the taxable income.
Interest expense limitation rule
This is another tax rule that the US government kept suspended for the pandemic. The main aim was to aid Americans; however, it was back in the 2021 tax year.
Business loss limitation rules
It temporarily suspended the Tax Cuts and Jobs Act rules in 2019 and 2020. With the help of this, the business entities were allowed to carry net operating losses back by five years or carry them forward indefinitely.
Families First Coronavirus Response Act
The Families First Coronavirus Response Act or FFCRA required that few businesses offer paid sick and family leave to workers affected by Covid-19 through March 31, 2021. Those businesses that were found making the payments above qualify for the tax credit for 100% of the expense incurred on sick leave payment, a family leaves pay, employers’ share of FICA payroll taxes, and expenses related to eligible healthcare plans.
Taxes and Inflation
It is just two months before the new corporate minimum tax will take effect. And companies and larger businesses are seeking information from the US government and the IRS to guide them on the scope and the probable impact on the business transactions like split-offs during the period.
Since January 1, 2023, large US companies will be attracting tax averaging at least $1 billion in publicly annual profit reported over the last three years. This tax which forms a constituent part of the tax law, climate, and healthcare known as the Inflation Reduction Act, necessitates that those business entities with a prevailing 21% levy on the corporate income calculate their taxes as defined in the current tax code and under a 15% rate that is based on their financial statement or book income.
This new tax law requires companies to pay higher of the two and addresses concerns revolving around the large profitable firms facing lower tax burdens.
Business Taxes in 2023 – New for 2023
The Inflation Reduction Act extended a few tax breaks related to energy and indexed for Inflation, the commercial buildings deduction for energy efficient properties beginning with the tax year 2023.
So, 2023 indicates wilder tax brackets coupled with enhanced exemptions. The credits signal to lower tax bills for the majority of taxpayers, and this is undoubtedly a good thing. However, remember, this is just a statutory surge for Inflation.
These rules/projections are for the tax year beginning 2023, and these are the figures you will use to file your tax returns in 2024.