by: Daniel Eger and Cindy Gonzalez

In the dynamic landscape of tax laws, staying informed about changes that affect both businesses and individuals reporting their income and expenses on Schedule C is of paramount importance. In recent years, several noteworthy adjustments have been made, significantly impacting the way deductions are calculated, particularly for expenses like Section 179 deductions, bonus depreciation, and meals and entertainment. Here, we delve into these pivotal changes:

Section 179 Deduction Limits

One of the cornerstones of tax planning for businesses has been the Section 179 deduction. This deduction enables businesses to write off the cost of qualifying property and equipment in the year they are placed in service, rather than depreciating them over time. In 2023, the Section 179 deduction limit has been raised to a generous $1,160,100 for property used 50% or more for business purposes. This marks an increase of $80,000 from the previous year (2022). This change empowers businesses to invest in capital assets and equipment while enjoying substantial tax savings.

Meals Deductions

The tax treatment of meals expenses has witnessed a notable transformation, with implications for businesses and individuals alike. During the height of the COVID-19 pandemic in 2021 and 2022, the IRS allowed a temporary 100% deduction for such expenses to provide economic relief and support the struggling hospitality industry. These deductions were permissible based on specific rules, which can be found here.

However, starting in 2023, there has been a shift in the deductibility of meal expenses. Any deductible meal is now subject to a 50% deduction under the guidelines outlined in Publication 463, available here. This change underscores the need for businesses and individuals to carefully document and categorize their expenses and adhere to the new rules governing these deductions.

Interest Rate Changes Effective October 1st, 2023

Starting on October 1st, 2023, significant adjustments will be made to interest rates for tax payments. Corporations will experience a slightly different rate structure than individuals. For overpayments exceeding $10,000, the interest rate on the excess amount will be reduced to 5.5%. In contrast, large corporate underpayments, representing taxes owed but not fully paid, will incur a higher 10% interest rate.

These adjustments in interest rates aim to ensure fairness and compliance within the tax payment system for both individuals and corporations. For detailed information and further reference, please visit the official IRS website. 

Changes to Bonus Depreciation

The window of opportunity for fully benefiting from one of the Tax Cuts and Jobs Act's (TCJA) most significant provisions is closing rapidly. This provision allows for a 100% bonus depreciation on a broad range of assets categorized as "qualified property." Initially set to expire at the close of 2019, the TCJA extended these bonus depreciation rules for assets placed in service after September 27, 2017, and before January 1, 2023, increasing the deductible amount to 100%. However, unless there are changes in the law, this bonus percentage is set to gradually decrease over the next few years, ultimately phasing out entirely:

• 2022: 100%
• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20%
• 2027: 0%

Stay Informed

The evolving landscape of tax laws necessitates vigilant awareness and proactive tax planning for businesses and individuals who report on Schedule C. The changes to Section 179 deductions, the phasing out of bonus depreciation, and the modifications to meals and entertainment deductions can have a significant impact on tax liabilities. As such, seeking guidance from tax professionals and staying informed about these changes is crucial for optimizing tax strategies and ensuring compliance with the latest IRS regulations.