Each year brings in new tax changes for small businesses. It can be difficult to stay on top of what’s changed or what’s going to change again next year, so we’ve done a roundup of new tax changes for 2023 and how they could impact your business.

But first, a quick review

In its simplest form, a tax deduction is an expense you can subtract from your taxable income to lower the amount of taxes you owe. Before you start deducting expenses left and right, you have to remember that expenses must fit the IRS criteria of a tax deduction.

Common small business tax deductions, depending upon your business type, could include advertising, business insurance, contract labor, depreciation, benefits, rent or personal expenses—such as charitable donations or child and dependent care expenses.

Employee salary reductions

For the 2022 tax year (i.e., the tax return you’ll file in 2023), the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $2,850.

Medical savings accounts

Participants who have self-only coverage in a medical savings account must have an annual deductible that is not less than $2,450, but not more than $3,700, and the maximum out-of-pocket expense amount is $4,950.

For family coverage, the annual deductible must not be less than $4,950 or more than $7,400. The out-of-pocket expense limit for family coverage is $9,050.

Research and development (R&D)

For the 2022 tax year, businesses that invest in research and development are required to deduct investment costs over five years. Further documentation about each planned research activity is also required.

Looking ahead: 100% bonus depreciation

Beginning in tax year 2023, the 100% bonus depreciation deduction (the purchase of business assets or property with a useful life of 20 years or more) will begin to phase out 20% each year until it completely phases out in 2027. It will follow this schedule: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026 and 0% in 2027.

Maximize tax savings

Be prepared for tax season by keeping accurate records of your business income and expenses. It’s also best practice to keep business and personal expenses separate come tax time. Remember that tax deductions can lead to significant tax savings, so consult with your tax expert to ensure you’re getting the most out of your return.