A primer on 2014 tax law changes – Don’t deduct that, it’s expired!
The biggest topic on most business owners’ minds is how their businesses will be affected by the Affordable Care Act (ACA). The good news is that the Employer Shared Responsibility provisions (the mandate) have been delayed for businesses until 2015, and then only those with 99 or more employees will be required to supply health insurance costs for workers. Those businesses with 50 or more employees won’t be affected until 2016, and those with less than 50 are exempt from the mandate.
More good news! If your business has 25 or fewer employees and your average workforce’s wage is less than $50,000 per year, you may qualify for a health insurance tax credit. However, the credit can only be claimed if you meet a pretty complex set of requirements—only about one-third will qualify. The main gist is that the mandate has been delayed or eliminated for most businesses in our community.
The more important issues related to business tax are the expiring provisions. The limit on Section 179 expensing of assets used to be $500,000 and for 2014 it will be only $25,000. That’s not a typo – the limit is 1/20th of last year’s limit! In addition, Bonus depreciation allowing another 50% depreciation on new purchases will no longer be available.
Finally, the mileage rate for business travel dropped from 56.5 cents per mile to $56.0 cent per mile.
Look for Congress to possibly retroactively revive some provisions on both the business and personal side, but don’t hold your breath, either. Plan accordingly with your tax professional.
Follow the rules or be prepared to pay big.
The 1099-Misc form is extremely important to the IRS. If you deduct independent contractor payments on your business tax return, it’s likely that you should report the payment on a 1099-Misc form. Generally, you should issue a 1099-Misc for any vendor you use that is not incorporated on the Federal level—just having an LLC in Kansas doesn’t satisfy the corporate filing requirement. It’s best to have the vendor complete a W-9 form before any work is completed. If a vendor refuses to give out the information, where else is he/she cutting corners?
Conversely, be prepared to receive a 1099-Misc if you perform contractor work. Even if you don’t receive a 1099, you are required to report the income you made. Audit techniques are designed to catch unreported income and this is a particularly touchy area with the IRS.
Working with your tax professional – Help me help you!
Accountants are reviewers, consultants and tax law gurus. As such, our rates are pretty steep when you use us as file clerks and bookkeepers. Bringing in unorganized records that cause us to do a lot of pre-work to get the tax return ready to prepare is a waste of our time and your money. It’s not that we charge a lot more for the work, it’s that we are doing work that is less valuable to you as a business owner (also we charge more for the work…).
We want to compare last year to this year, see where expenses were out of whack, discuss with you the benefits of an S-Corporation election or estimate the long-term costs of buying or leasing a piece of equipment or hiring new staff. We want you to see your financial statements as decision making tools and can teach you to rely on them, not fear them.
Be sure that you are asking your accountant for a profit and loss template if you are not using accounting software. Do the totaling of the expense categories and insert them into the spreadsheet and anything that is questionable should be a discussion item. Make sure all of your year-end statements, mileage logs, and asset purchase records are present and that bank and loan statements are available if needed.
Your organization allows for so much more than a more pleasant once-a-year experience. Elevate your game and let your accountant help you grow your business.