The 2013 tax year saw several important changes go into effect, and small business owners need to take note. Whether you are an entrepreneur, own a small startup, or run an unconventional business, the tax changes will likely affect you and your company in some way.
What’s New for 2013?
Easier Home Office Deduction
If you operate your small business from your home, or use your home as the location of an online business, a simplified home office deduction is new for the 2013 tax year. In the past, you had to calculate all of your actual home office expenses, which was tedious at best. This tax season, you can take a standard deduction, instead.
$5 per square foot (maximum of 300 square feet)
This means the maximum deduction you can take for the standard home office deduction is $1,500 for tax year 2013.
Mileage Rate Increases
Speaking of your small business, if you use your personal car for company needs, you can now take a standard mileage rate deduction of 56.5 cents per mile. That’s up one cent from the previous year. It may not sound like much, but every penny counts when it comes to figuring out your taxes.
Tax Rate Changes
The 2013 tax year means some changes in the tax rate for those who operate their own business, specifically when it comes to calculating the self-employment tax. As for the social security portion of the tax, it increases to 12.4%. This boosts the overall self-employment tax to 15.3% for 2013.
As for your earnings, the maximum income calculated in paying the social security portion of the tax is capped at $113,700 for 2013.
Health Care Tax Credit
When it comes to health care, 2013 is the last year that the Small Business Health Care Tax Credit stays at its current level. This credit affects employers paying less than $50,000 in average annual salaries, those with less than 25 full-time employees, and those who pay 50% or more of their staff member’s health insurance premiums.
For 2013, the limit is 25% of premiums paid for small employers that are tax-exempt, like charities. It is 35% of premiums paid for other small employers.
What’s New for 2014?
That brings us to what’s new for 2014. When you sit down to do your 2014 business taxes, you’ll see that the credit available for the Small Business Health Care Tax Credit has increased significantly.
- ·50% of premiums paid for small employers (35% in 2013)
- ·35% of premiums paid for small tax-exempt employers (25% in 2013)
The IRS gives this example: If you paid $50,000 toward your employee’s health care premiums in 2013, and qualified for a 15% credit, you will have saved $7,500 for 2013. For tax year 2014, if you qualify for a slight increase, at 20% you end up saving $10,000.
Tax Rate Changes
As for the self-employment tax, there are some slight changes from 2013 when it comes to calculating the social security portion of the tax. For 2014, the income used for calculations is capped at $117,000. That’s up $3,300 from 2013.
Mileage Rate Slight Decrease
If you continue to use your personal vehicle for company needs in 2014, you will see a slight decrease in the standard mileage rate. For the 2014 tax period, the rate will be 56 cents per mile.
Comparing 2013 to 2014 is a mixed bag for small business owners. However, with more and more companies and individuals choosing to find alternative ways to grow business, there are likely more tax changes to come for small business owners in the future.
Michael Stuart is a Certified Public Accountant and Financial Planner. After hearing the same handful of questions from his clients over and over, he decided to learn ‘this internet thing’ and post the answers to those questions online. Soon after, Michael founded big4accountingfirms.org. A blog dedicated to sharing industry insider information and general tax advice.