Whether you file as a corporation
or sole proprietor here's what business owners need to know about tax change
for 2014.
Standard Mileage Rates
The standard mileage rates in 2014 are as follows: 56 cents per business mile
driven, 23.5 cents per mile driven for medical or moving purposes, and 14 cents
per mile driven in service of charitable organizations.
Health Care Tax Credit for
Small Businesses
Small business employers who pay at least half the premiums for single health
insurance coverage for their employees may be eligible for the Small Business
Health Care Tax Credit as long as they employ fewer than the equivalent of 25
full-time workers and average annual wages do not exceed $51,000 (adjusted for
inflation).
Starting in 2014, the tax credit
is worth up to 50 percent of your contribution toward employees' premium costs
(up to 35 percent for tax-exempt employers). For tax years 2010 through 2013,
the maximum credit was 35 percent for small business employers and 25 percent
for small tax-exempt employers such as charities.
Year-End Tax Planning for
Businesses
While the fate of several
business-related tax extenders such as R & D credits, bonus depreciation,
and Section 179 expensing that expired at the end of 2013 is uncertain, there
are still a number of end of year tax strategies businesses can use to reduce
their tax burden for 2014.
Purchase New Business Equipment
Section 179 Expensing. Business should still take advantage of Section 179
expensing this year for a couple of reasons. First, is that in 2014 businesses
can elect to expense (deduct immediately) the entire cost of most new equipment
up to a maximum of $25,000 for the first $200,000 of property placed in service
by December 31, 2014. Keep in mind that the Section 179 deduction cannot exceed
net taxable business income. In addition, unless Congress reauthorizes it, the
bonus depreciation expired at the end of 2013 and is not available for 2014.
While most businesses follow a
calendar year, for those that don't there is an exception to the $25,000 cap
that allows those business to take advantage of the $500,000 Section 179
benefit. However, only businesses whose calendar year begins in 2013 and ends
in 2014 can take advantage of this.
Qualified property is defined as
property that you placed in service during the tax year and used predominantly
(more than 50 percent) in your trade or business. Property that is placed in
service and then disposed of in that same tax year does not qualify, nor does
property converted to personal use in the same tax year it is acquired.
Note: Many states have not matched these amounts and, therefore,
state tax may not allow for the maximum federal deduction. In this case, two
sets of depreciation records will be needed to track the federal and state tax
impact.
Please contact our office if you
have any questions regarding qualified property.
Timing. If you plan to purchase business equipment this year,
consider the timing. You might be able to increase your tax benefit if you buy
equipment at the right time. Here's a simplified explanation:
Conventions. The tax rules for depreciation include
"conventions" or rules for figuring out how many months of
depreciation you can claim. There are three types of conventions. To select the
correct convention, you must know the type of property and when you placed the
property in service.
The half-year convention: This convention applies to all property except residential
rental property, nonresidential real property, and railroad gradings and tunnel
bores (see mid-month convention below) unless the mid-quarter convention
applies. All property that you begin using during the year is treated as
"placed in service" (or "disposed of") at the midpoint of
the year. This means that no matter when you begin using (or dispose of) the
property, you treat it as if you began using it in the middle of the year.
Example: You buy a $40,000 piece of machinery on December 15. If
the half-year convention applies, you get one-half year of depreciation on that
machine.
The mid-quarter convention: The mid-quarter convention must be used if the cost of
equipment placed in service during the last three months of the tax year is
more than 40 percent of the total cost of all property placed in service for
the entire year. If the mid-quarter convention applies, the half-year rule does
not apply, and you treat all equipment placed in service during the year as if
it were placed in service at the midpoint of the quarter in which you began
using it.
The mid-month convention: This convention applies only to residential rental
property, nonresidential real property, and railroad gradings and tunnel bores.
It treats all property placed in service (or disposed of) during any month as
placed in service (or disposed of) on the midpoint of that month.
If you're planning on buying
equipment for your business, call us first. We'll help you figure out the best
time to buy it to take full advantage of these tax rules.
Other Year-End Moves to Take
Advantage Of
Business Energy Investment Tax
Credit
Business energy investment tax
credits are still available for eligible systems placed in service on or before
December 31, 2016, and businesses that want to take advantage of these tax
credits can still do so.
Business energy credits include
solar energy systems (passive solar and solar pool-heating systems excluded),
fuel cells and microturbines, and an increased credit amount for fuel cells.
The extended tax provision also established new credits for small wind-energy
systems, geothermal heat pumps, and combined heat and power (CHP) systems.
Utilities are allowed to use the credits as well.
Partnership or S-Corporation
Basis. Partners or S corporation shareholders
in entities that have a loss for 2014 can deduct that loss only up to their
basis in the entity. However, they can take steps to increase their basis to
allow a larger deduction. Basis in the entity can be increased by lending the
entity money or making a capital contribution by the end of the entity's tax
year.
Caution: Remember that by increasing basis, you're putting more of
your funds at risk. Consider whether the loss signals further troubles ahead.
Retirement Plans. Self-employed individuals who have not yet done so should
set up self-employed retirement plans before the end of 2014. Call us today if
you need help setting up a retirement plan.
Dividend Planning. Reduce accumulated corporate profits and earnings by
issuing corporate dividends to shareholders.
Budgets. Every business, whether small or large should have a
budget. The need for a business budget may seem obvious, but many companies
overlook this critical business planning tool.
A budget is extremely effective in
making sure your business has adequate cash flow and in ensuring financial
success. Once the budget has been created, then monthly actual revenue amounts
can be compared to monthly budgeted amounts. If actual revenues fall short of
budgeted revenues, expenses must generally be cut.
Tip: Year-end is the best time for business owners to meet with
their accountants
Barry Eisenberg, SCORE Counselor
