Have you said good-bye to 2023, yet? Likely not, if you are working on tying up your 2023 bookkeeping and reporting so you can be prepared for filing your taxes.
SBDC’s business advisors work with their clients to help them make sure they are keeping their books in order and their tax filings current. Hollis McGuire, SBDC Business Advisor has outlined some notable tax updates at both the federal and state levels here for you.
Federal Tax Update
There are currently 21 (!) types of 1099s with about a dozen in widespread use. If your company submits over ten 1099 forms, they must be submitted electronically.
Botha gift and a curse. Accounting software is inexpensive and readily available, but entrepreneurs often aren’t using it well, unless they have an accounting background. Incorrect books, used as the foundation for tax returns, often translate to errors in tax returns. The cost of correcting the books can be expensive, too.
Although tax software keeps improving, software does not make up for planning and strategy, and small companies are paying higher taxes than they may need to pay. This is especially true for companies making over $150k in net income.
Preparing taxes in-house – For micro and smaller businesses, if the business owner is comfortable with the tax situation, especially if it is a lifestyle company that runs at a steady state, the business may get the best results from in house tax preparation, as schedule C software has become increasingly robust. Still, a second set of eyes such as an NH SBDC advisor may uncover tax opportunities or red flags in their schedules.
If the business’ books are in disarray and/or you hate looking at tax forms, it is always better to go outside for preparation. When this is the case, you can work with a CPA (certified public accountant) or an EA (enrolled agent) to do the preparation. You will likely find that an EA will be less expensive. We have observed that business owners are finding it more difficult to find an affordable option for tax preparation if they choose to go outside their company.
Will you be audited?
Audit rates continue to be very low, with over 70% of all audits currently done by mail. These address from one to a few issues only, and they are an easy lift that can often be handled in house.
What are the big federal changes?
2023 changes were targeted to specific issues such as energy credits.
- Clean vehicle credits - Credits are available primarily for fully electric vehicles, with only a few plug-in hybrid vehicles on the credit list. There are no Hondas or Toyotas on the list.
- Home energy credits - Home energy credits have been extended until 2032, at a maximum $3,200 credit per year or 30% of cost, whichever is less.
The IRS is increasingly focused on cybersecurity and is also focused on automation in every aspect of reporting.
What should you be thinking about this year?
- Are you current on your filing? Compliance shows good intent to the IRS.
- Get a jump on the 2023 filing deadline so you aren’t struggling to get 2023 done until October 2024. If you have the filing behind you, it is much easier to focus on 2024 with updated and useful information.
- A reminder that you can communicate with the IRS for any type of notice with the Document Upload Tool. As of October 2023, any IRS notice received can be addressed via this tool.
- Watch out for tax scams. Tax scams often come by email or text and sometimes by phone. The IRS never uses email or text. The IRS uses secure electronic portals or the US Postal Service. The IRS never reaches out by phone until after communication is established by electronic portals or US mail, or if the taxpayer calls a valid IRS number, which can be verified on IRS.gov. Any tax scam can and should be forwarded to email@example.com.
- Note that small mom and pop tax preparers are increasingly being breeched. If you use such a preparer, ask if they have a written information security plan. All preparers are now required to have such a plan.
- An important note on the 2017 tax overhaul (Tax Cuts and Jobs Act - TCJA). Many changes in the tax bill of 2017 are due to expire at the end of 2025, which is coming up quickly. Benefits for the very wealthy were made permanent, while benefits for working people and the poor expire.
New Hampshire Tax Update
New Hampshire had few major changes to tax law in 2023. However, the ongoing reduction in NH rates is significant for businesses.
- NH Interest and Dividends Taxes continue to go down and are being eliminated as of 2025. The last I & D returns will be filed for 2024. The 2023 rate is 4% and the 2024 rate is 3%.
- NH Business Enterprise Tax (BET) is made up of total compensation paid out, plus interest and dividends paid, or gross receipts, to create a historical filing threshold. The 2023 and 2024 threshold for BET is $281k, up from $250k. The 2023 rate is .55%, and tax is credited against the BPT.
- NH Business Profits Tax (BPT) filing is based on gross income. Since 2022, the historical threshold to file BPT has been $92,000. Gross business sales under this amount do not need to file, but still must file a BT Summary if the company files a BET return. The 2022 tax rate was 7.6% and the 2023 rate is 7.5%.
- BT Summary All businesses that file a BET and/or a BPT must file a Business Tax Summary form.
- NH Meals and Rooms taxes. With the increasing use of third-party software (such as Door Dash, UberEATS and Toast), many restaurant owners are making the mistake of reporting gross minus 3rd party software fees in the M&R tax returns. Restaurant owners must use gross and include the fees in the sales reported. Some items that are non-taxable are not pulled out of the 3rd party reports and business owners must track these separately.
- Sole proprietors and single member LLCs with no federal EIN must get a DIN from the State of NH. These companies should not use a SSN on the State of NH returns.
Remember that you can connect with your SBDC business advisor to talk through your tax questions. We are not CPAs or tax preparers. We can, however, highlight items you should address in your books and financial statements, and ask questions that should be discussed. Strategizing and planning with your advisor can help make 2024 a great year!