Whether you file as a corporation or sole proprietor here’s what business owners need to know about tax changes in 2013.
Standard Mileage Rates
The standard mileage rate in 2013 is 56.5 cents per business mile driven, 24 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.
Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000. The credit can be claimed in tax years 2010 through 2013 and for any two years after that. The maximum credit that can be claimed is an amount equal to 35% of premiums paid by eligible small businesses.
Credit for Hiring Qualified Veterans
The maximum credit that employers can take for hiring qualified veterans in 2013 is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.
Section 179 Expensing
In 2013 the maximum Section 179 expense deduction for equipment purchases is $500,000 of the first $2,000,000 of certain business property placed in service during the year. The bonus depreciation is 50% for qualified property that exceeds the threshold amount.
Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.
10 Tax Breaks Set to Expire in 2013
Federal tax breaks come and go, and this year is no exception. Unless Congress takes action, 55 of them are set to expire on December 31, 2013. Let’s take a look at the ones that are most likely to affect taxpayers like you.
1. Teachers’ Deduction for Certain Expenses
Primary and secondary school teachers buying school supplies out-of-pocket may be able to take an above-the-line deduction of up to $250 for unreimbursed expenses. An above the line deduction means that it can be taken before calculating adjusted gross income.
2. State and Local Sales Taxes
Taxpayers that pay state and local sales tax can deduct the amounts paid on their federal tax returns (instead of state and local income taxes)–as long as they itemize. In other words, if you’re thinking of buying a big ticket item such as a boat or car and live in a state with sales tax, you might want to think about buying it this year.
3. Mortgage Insurance Premiums
Mortgage insurance premiums (PMI) are paid by homeowners with less than 20% equity in their homes. These premiums were deductible in tax years 2012 and 2013; however, this tax break is scheduled to end on December 31, 2013. Mortgage interest deductions for taxpayers who itemize are not affected.
4. Exclusion of Discharge of Principal Residence Indebtedness
Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision, which expires at the end of this year, allows homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of cancelled mortgage debt. Also included are taxpayers seeking debt modification on their home.
5. Distributions from IRAs for Charitable Contributions
Taxpayers who are age 70 Â½ or older can donate up to $100,000 in distributions from their IRA to charity. Some people do not want to take the mandatory minimum distributions (which are counted as income) upon reaching this age and instead can contribute it to charity, using it as a strategy to lower income enough to take advantage of other tax provisions with phaseout limits.
6. Mass Transit Fringe Benefits
In 2013, commuters using mass transit can exclude from income up to $245 per month on transit benefits paid by their employers such as monthly rail or subway passes, making it on par with parking benefits (also up to $245 pre-tax). This provision is set to expire at the end of the year, however and in 2014, pre-tax benefits for mass transit commuters drop to a maximum of $130 per month, while parking benefits remain the same.
7. Energy Efficient Appliances
This tax break has been around for a while, but if you’re still thinking about making your home more energy efficient, now is the time to take advantage of this tax credit, which reduces your taxes (as opposed to a deduction that reduces your taxable income). The credit is 10% of the cost of building materials for items such as insulation, new water heaters, or a wood pellet stove.
Note: This tax is cumulative, so if you’ve taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2011, the maximum credit you could take this year is $200.
8. Electric Vehicles
Buy a four-wheel electric vehicle such as a Ford Focus Electric (Model years 2012-2014), BMW i3 Sedan (Model year 2014), Fiat 500e (Model year 2013), and Nissan Leaf (Model years 2011-2013) and take a tax credit of $7,500. Other vehicles, such as a 2014 Accord Plug-In Hybrid and the Toyota Prius Plug-in Electric Drive Vehicle (Model years 2012-2014) are eligible for a lesser tax credit. Call us for additional information on tax credits for electric vehicles.
Note: The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States.
9. Donation of Conservation Property
Also expiring this year is a tax provision that allows taxpayers to donate property or easements to a local land trust or other conservation organization and receive a tax break in return.
10. Small Business Stock
If you’ve been thinking about investing in a small business such as a start-up C-corporation, consider doing it this year because this tax provision expires on December 31. If you hold onto this stock for five years, you can exclude 100% of the capital gains–in other words, you won’t be paying any capital gains. If you wait until January, you will only be able to exclude 50% of the capital gains.
To learn more about whether you should be taking advantage of these and other tax credits and deduction set to expire at the end of 2013, please give us a call today.
Richard L. Lipton CPA & Associates LLC,located in Florham Park, N.J., draws on its founder’s 10 years as a stockholder and manager of family-owned Sam’s Tire Co. in Paterson, N.J.
Richard L. Lipton CPA & Associates LLC “is structured to personally serve large and small clients who have a need for business consulting services as well as accounting and tax services. We have even developed aniche in the area of forensic accounting. Our clients have realized that this combination of skills is extremely valuable in providing the highest quality professional services in today’s and the future’s economy.” – Richard L. Lipton CPA