Each year the IRS makes tax changes that impact small businesses, but usually they’re small and easy to miss. When filing your taxes this year, you’ll have to account for some major changes to multiple small business tax laws. Here are the highlights.
Home office deduction
A lot of small business owners balk at taking a home office deduction, even if they legitimately work from home!
The main reason for this is that the IRS method for calculating the deduction has always seemed to involve high level calculus equations and the use of a tape measure. Thankfully, Uncle Sam has come to his senses and decided to make it easier than ever for small business owners to calculate their home office deductions.
Now you can deduct $5 per square foot with a maximum $1500 deduction. No more measuring the square footage of the bathroom or calculating portions of your utility bills. Simply determine the square footage of your home office, multiply that number times $5, and that’s the amount you’re eligible to deduct.
The $1500 cap also means the office area in question can’t be larger than 300 square feet. If it is larger, a) good for you! and b) you can still only take the deduction up to 300 square feet.
Just make sure that your business income is higher than your expenses – if your expenses are greater, you’ll only qualify for a portion of the deduction.
Affordable Care Act
There is still a lot of confusion surrounding the Affordable Care Act, and what it means for small businesses. Don’t freak out, and don’t believe all the hype – the best thing you can do is research how the new laws impact your business, because the way the act is applied to someone else’s business may be completely different than how it’s applied to yours.
The manner in which the Affordable Care Act impacts your small business depends, in part, on the size of your small business.
If you have less than 50 employees, you won’t be required to offer health insurance and you won’t be fined if you don’t. The majority of small business owners in the U.S. fall into this category, which means the act won’t impact their taxes in any way.
However, if you have less than 50 employees and you do choose to provide health insurance to them, the IRS will give you a tax credit.
Do your research – every small business is different, and a tax law that applies to your friend’s company may not apply to yours, even if you have the same number of employees.
A health insurance agent is a great resource for finding out more about how the Affordable Care Act affects your small business. Contact a representative from an insurance agency and get your questions answered – these representatives are required to be up to date on the way the law impacts small businesses.
Equipment and other assets
This change is perhaps the biggest for 2014.
Purchasing equipment for your small business is a huge expense. Because of this, Uncle Sam has allowed small business owners to deduct the cost of the purchase of large equipment, as well as the amount the equipment depreciates in value over the first few years after purchase.
Well, bad news for anyone out there buying million dollar security systems or restaurant equipment. Last year, section 179 allowed you to deduct up to half a million dollars. This year? Uncle Sam decided that $25,000 was the highest he’d go.
That’s right – the deduction amount has been reduced to just 5% of the original amount. If you’d been planning on making a large equipment purchase in 2014, you might want to wait a year or two and see if the allowance is restored to the higher amount.
Questions about your 2014 taxes? Post them below!