Some of you are just ramping up to meet the April 15 tax deadline. Wherever you are in the process, check out yesterday’s post with tips for your 2012 and 2013 filings. Then read these four additional small-business tax tips from Lead Tax Analyst at The Tax Institute at H&R Block, Lindsey Buchholz, to keep in mind for next year’s return.
1. Buy, Buy, Buy! (Deductible Purchases, That Is). At the end of 2012, there was a lot of panicked, sky-is-falling ranting regarding the “fiscal cliff.” On New Year’s Eve, many were on pins and needles waiting for Congress to say something. Finally, there was a consensus and some answers that elicited a few sighs of relief (as well as grumbling). One of the soft landings from the fiscal cliff was regarding Section 179, a deduction limit for buying new and used equipment, machinery, and off-the-shelf software. The deduction was set to expire in 2012 but was extended.
“Originally, that was set to drop down pretty substantially from $500,000 to $139,000, and they extended that $500,000 deduction limit through 2013,” Buchholz says. “So business owners who have capital expenditures they need to make coming up should try to accelerate those into 2013 instead of waiting. Buying that stuff is expensive, and sometimes people don’t have the money, but it can be very advantageous from a tax perspective to get it done in 2013.”
In addition, the 50 percent bonus-depreciation deduction (for new equipment) was extended. But in 2014, those benefits could come to an end. “You can actually combine those two deductions together for a lot of property,” Buchholz says. “So it could be a really great year and lower your tax liability if you can make those things happen.”
2. Prepare for the Tax Holiday Hangover. In 2010, a payroll tax holiday was passed to give a boost to the economy, reducing the Social Security/Medicare tax rate from 15.3 percent to 13.3 percent for self-employed people. That benefit expired in 2012.
“Anybody making estimated payments is going to have to go back up to that 15.3 percent rate instead of the reduced rate that they’ve been paying over the last couple years,” Buchholz says. (Read more about it in BloombergBusinessweek’s fiscal-cliff column.)
It’s something to prepare for as you pay estimated taxes due in April, June, September, and next January. And yes, it is important to make those quarterly payments. “The IRS and the department of labor are very strict about making sure that you get those in on time and make them throughout the year, especially if you have employees and you’re doing payroll-tax withholding,” Buchholz says. “If you’re a sole proprietor and you’re not withholding payroll taxes on employees, your penalties are substantially less because you’re not subject to those other payroll-tax withholding penalties, but it’s just not something that you should let slide.”
3. Don’t Forget: You Might Want to Retire Someday. Those who want to make deductible contributions to a retirement account should know the deadlines and maximum-contribution amounts. Most IRAs have end-of-year deadlines.
“The exception to that rule is what’s known as a SEP, Simplified Employee Pension Plan,” Buchholz says. “You can make contributions to that up until the due date of the return, so April 15 of 2013, and it will still count for your 2012 tax year.”
Check out E*Trade’s handy Traditional IRA Contribution Amounts and Deadlines chart.
4. Health Care: Credits for Employee Coverage. As of 2014, health insurance will be mandatory if you have 50 or more full-time equivalent (FTE) employees. There are penalties for those who don’t.
For businesses with 25 or fewer FTE employees that choose to provide health-care coverage, there is a Small Business Health Care Tax Credit available for qualifying small employers.
“For 2012, the max credit is 35 percent, and for 2014 it will increase to a 50 percent maximum,” Buchholz says. “To qualify for the credit, the business must have no more than 25 full-time equivalent employees employed during the year, pay an average annual wage of no more than $50,000 per FTE employee, and pay at least 50 percent of health-insurance premiums of a qualifying health-plan arrangement. An employer will be treated as meeting that requirement if it pays at least 50 percent of the premium for employee-only coverage, even if the employee has family or self-plus-one coverage.”