Three tax changes small business owners should keep in mind for 2014.
By Barbara Weltman
Your Estimated Taxes for 2014
Most small businesses don’t pay income tax; their owners do. Sole proprietors, partners, limited liability company members, and S corporation shareholders pay taxes on their share of business profits on their personal returns, and usually do so via estimated taxes, the first payment of which is due April 15, 2014. In order for you as a small business owner to figure out your 2014 estimated taxes, take note of changes for this year which are certain. Also factor in the uncertainty that ultimately may impact your taxes for this year.
New rules on tax changes
There’s good news and bad news. The good news: the small employer health insurance credit increases in 2014 to 50% of insurance premiums paid by eligible employers to provide medical coverage for their staff (the credit limit for 2013 is 35% of premiums). However, the credit can only be taken if you pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace. The federal SHOP won’t be online until November of this year, but coverage can be purchased by telephone at 800-706-7893.
The bad news: the IRS mileage allowance for business use of a vehicle in 2014 is 56 cents a mile, which is a half-penny less than in 2013. This rate can be used by those who use their personal vehicles to avoid the need to substantiate the actual costs for business driving. It can also be used by employers to reimburse employees for their business driving in personally-owned vehicles.
Cost of living increases
Due to cost of living adjustments (COLAs) to various tax rules, there are higher deduction and credit limits tax changes in 2014. These COLAs help businesses and their employees. Examples:
- Contributions to profit-sharing and simplified employee pension (SEP) plans are deductible up to $52,000 (up from $51,000 in 2013)
- Exclusion for employer-paid adoption assistance is $13,190 (up from $12,970 in 2013)
- Contributions to health savings accounts (HSAs) are higher for both individual coverage and family plans
More than four dozen tax rules expired at the end of 2013. If they are extended and you take advantage of them, they may reduce the amount of taxes you’ll owe for the year. Some examples of these tax changes:
- Bonus depreciation for buying new equipment and machinery
- Tax credit for increasing research expenditures
- Tax credits for hiring certain workers, such as those from targeted groups (e.g., veterans who meet certain requirements), empowerment zones, and Indian reservations
First-year expensing (“the Sec. 179 deduction”) is limited to only $25,000 in 2014 compared with $500,000 in 2013, unless Congress increases the limit.
What to do about the tax changes
Work with a tax advisor who can discuss the tax changes relevant to your business and keep you apprised of new law developments. As tax rules change, you may need to adjust your estimated tax payments later in the year.
About the Author
Barbara Weltman is a tax and business attorney and expert, and is the publisher of “Big Ideas for Small Business®.” She partners with The Hartford on their Business Owner’s Playbook which helps small business owners succeed and grow by offering a wealth of practical and relevant insights to running a business.