Filing season is officially upon us. Yes, April 15th is still months away, but the IRS has begun accepting 2013’s returns, and millions of Americans are getting ready to file their taxes. However, tax law can still be extremely complicated, especially for small business owners. I typically recommend that business owners meet with an accountant to maximize their deduction, but if that isn’t fiscally possible, the next best tax strategy is to research as much as you can before preparing your returns. For small business owners taking a crack at filing on their own, keep the following tax tips in mind.
1. Remember Your Home Office Deduction
Calculating your home office deduction used to leave your brain feeling like cold mush – this one deduction actually required an entirely separate form! While you can still technically use Form 8829 to calculate your home office deduction, the IRS has kindly introduced another option. This much simpler rule allots $5 per square foot of your office, up to 300 square feet. If your office is bigger than that, you can claim a flat $1,500 deduction. Now, this rule doesn’t help businesses that take up a large part of the owner’s home, but it will help save plenty of tax preparation time for the small businesses that are effectively confined to a home office.
2. Standard Mileage Rates Have Changed
The standard mileage rate for 2013 was 56.5 cents per mile, which was one-cent more than the rate for 2012. While that doesn’t sound like much, every penny counts and, if you drive around a lot for work, that one-cent increase could be a real boon. Also, anyone claiming standard mileage should note that the mileage rate is going to drop down to 56 cents in 2014. Be sure to check in with the IRS’s site to make sure you have the latest up-to-date information on deduction limits.
3. Section 179’s Limit Is Getting Slashed
Section 179 is a provision in the tax code that allows businesses to write off certain types of major purchases. For the past few years, the government has extended a $500,000 deduction limit for Section 179 purchases as a way to spur business investment and growth. Unfortunately, this limit has not been extended through 2014. While you can still claim up to $500,000 in your 2013 returns, that limit is going to fall back to $25,000 for this upcoming fiscal year. The most common purchases covered by Section 179 are business vehicles, office furniture, off-the-shelf software, and improvements to retail or restaurant property. If you made any major purchases within those categories in 2013 make sure you take advantage of the higher deduction limit while you can.
4. Self-Employment Tax Deductions
As you are calculating your adjusted gross income for 2013, don’t forget that you can deduct half of the amount you paid in self-employment taxes. If you were self-employed and paid for medical and dental insurance in 2013, the Small Business Jobs Act allows you to deduct those expenses as well.