Tax season is upon us and, of course, there are a host of changes that impact small businesses – some good, some not so good. To help you navigate what’s new, here’s a breakdown of five big changes that you should know about before you file your 2014 return.
Claim Your 2014 Business Mileage
If you drove anywhere for business, whether it was to the airport for a business trip or to Office Depot to purchase printer ink, don’t forget to log that mileage and file it as an expense on your return. The IRS mileage rate for the 2014 tax year was 56 cents per mile (a slight decrease from last year).
Take Advantage of the Simplified Home Office Deduction
In 2013, the IRS was kind to home-based businesses. In a bid to save more than 1.6 million hours in tax preparation and provide qualifying home office dwellers with a deduction of up to $1,500 per year (that’s $5 per square foot) the IRS simplified the process of calculating the home office tax deduction.
This simplified deduction also applies in 2014. Here’s how it works:
Home businesses can either use the regular method of calculating the deduction whereby you track actual expense such as utilities, mortgage, etc. and calculate your deduction based on the percentage of your home devoted to business. Or, you can use the simplified version and claim $5 per square feet up to a maximum of $300 square feet of home office space. If your office is over 300 square feet, then you’d need to go the traditional method. Read more in How to Claim the Home Office Tax Deduction.
Tax Credits That Have Dwindled
2014 saw big changes to tax credits – some were eliminated while others were reduced substantially. Here’s what you need to know:
Section 179 (which lets you expense the entire cost of equipment purchases in the year you bought them rather than depreciating the cost) will experience a whopping cut from $500,000 to $25,000 in 2015 if Congress fails to take action to extend the threshold. The good news is that if you purchased equipment in 2014 you can still claim up to the $500,000 threshold with this year’s filing.
If you hired veterans in the past, note that the work opportunity tax credit that allowed businesses to claim a credit up to $9,600 for hiring veterans and other workers has gone.
Another tax credit to fall by the wayside is the energy tax incentive that encouraged green business investments.
Tax Brackets have Increased
If you report federal taxes as a pass-through entity (partnership, S Corporation and LLCs) or operate a sole proprietorship your federal income tax bracket likely experienced an increase in 2013. This increase, a result of big changes in federal income tax brackets for individuals, is around for 2014 too.
By way of example, the tax rate for single filers making between $9,076 and $36,900 is now 15%. If you make between $89,351 and $186,350 the rate is 28%. For a complete list of tax brackets (single filers, married filers, etc.) click here.
Obamacare and your 2014 Taxes – Individual Mandate Penalties Kick-In
This tax season ushers in the first financial penalties for the individual mandate. If you had health care coverage in 2014, easy – just tick a box on your return and move on to the next section.
However, if you didn’t have coverage you’ll face a penalty. According to Healthcare.gov, you’ll pay the higher of these two amounts when you file your 2014 federal tax return:
1% of your yearly household income
$95 per person for the year ($47.50 per child under 18)
Here’s another scenario. If you did sign up for Obamacare through a marketplace in 2014 you’ll need to complete the new Form 1095-A which should have been sent to you in the mail in early February. Why?
When you applied for health coverage through the marketplace, you provided an estimate of your 2014 income and other information. The marketplace used this information to determine a premium tax credit you were eligible for. Form 1095-A helps the IRS determine whether you have received the right credit on your monthly premiums, if you’re subject to a penalty, and whether you can claim an exemption. All a bit confusing! Read more in How Obamacare will Impact your 2014 Taxes from The Fiscal Times. You can also read more about this process on Healthcare.gov here.
Talk to an Expert
Remember, these are just some of the changes that the 2014 tax code brought into effect and none of this constitutes tax advice, so please talk to your tax advisor to better understand the full scope of changes that will impact your 2014 return.