Small Business Health Care Tax Credit

A tax credit is available to small business employers who provide health care insurance for employees. Employers must have less than 25 full time equivalent employees, and average annual wages paid must be less than $50,000 in order to qualify for this credit. The credit is 50% of premiums paid, but in order to be eligible for the credit, a small employer must pay the premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace.

The credit is available to employers for two consecutive taxable years. Employers can still claim a business expense deduction for premiums paid in excess of the tax credit received. If you think you may qualify for this credit, please let us know when you submit your tax organizer. Please contact our office if you would like more information.

Home Office Deduction - Simplified vs. Standard

Rather than tracking actual expenses, you may choose to use a formula to calculate your home office deduction. You may change your calculation method each tax year to the method that is most beneficial. The formula set by the IRS is $5 per square feet up to 300 square feet, allowing for a maximum deduction of $1,500. You may still deduct your home mortgage interest and property taxes on Schedule A using this optional method. If you choose to use the standard deduction, you must keep records of your actual expenses and may be subject to depreciation recapture when your home is sold.

Budget and Breakeven Analysis

Are you considering formulating a cash-flow budget, determining your net profit break-even point, or developing a turnaround plan for the business? We can help, so please contact us.

Mixing Business and Pleasure Travel

You may deduct travel, lodging and 50% of meals incurred in attending a convention or seminar in the U.S. that benefits your business (excludes investment, political or social events). The primary purpose of the travel must be attending a business event. Determining the primary purpose is based on time. A schedule should be made of the business days attended, including event hours, and personal days. Remember to separate meals from other expenses since they are only 50% deductible. Please contact our office if you have additional questions.

Self-Employed Health Insurance Deduction

Self-employed health insurance premiums may be deductible if you are not eligible to participate in a subsidized plan of your spouse. This deduction is taken on Form 1040 page 1. Long-term care insurance premiums also may qualify for the deduction, subject to limits based on age. Medicare premiums are also deductible as self-employed health insurance, even if it’s coverage for the spouse of the self-employed person. If you take the Self-Employed Health insurance deduction, then the premiums are not deductible on Schedule A as medical expenses. The amount of the deduction is limited to the income from the trade or business under which the insurance plan is established less applicable retirement deductions and ½ of the self-employment tax on that income. If your deduction is limited, the remainder of your premiums that are not deducted as Self Employed Health Insurance Premiums, can be deducted on Schedule A as medical expenses, subject to the applicable threshold.

Tax Benefits to Larger Vehicles

Most passenger vehicles and small trucks used for business are subject to special reduced depreciation deductions. This deduction is further reduced by any personal use. But, if you buy a "heavy" sport utility vehicle (SUV), pickup or van, a much better set of rules apply. According to IRS regulations, a passenger vehicle is considered a "truck" for tax purposes when it has a gross loaded vehicle weight rating (the manufacturer's maximum weight rating when loaded) of over 6,000 pounds. Truck status means very favorable depreciation rules when the vehicle is used over 50% for business, including up to $25,000 of Section 179 expense. Contact us for a computation of the tax benefit. Although this may result in lower taxes currently, you should keep in mind the additional operating costs such as higher insurance, poorer gas mileage, more expensive vehicle, etc.

Paying Your Child from Your Sole Proprietorship

Consider paying your child justifiable compensation for work helping you in your business activities, such as filing and answering the phone, computer assistance, sufficient to utilize your child's standard deduction and/or lower tax bracket. Note: Payroll taxes will NOT be due on this compensation if the child is under age 18. Please contact us to assist you in implementing this idea.

Section 179 Deduction

This deduction allows a certain amount (maximum adjusted annually) of eligible equipment purchases to be fully deductible as long as there are sufficient profits. This expense deduction begins to phase out when purchases exceed an annual limit, also adjusted annually. The equipment deduction is only allowed to reduce a profit, not increase a loss. Therefore, if you are having a profitable year, consider whether you'll need additional equipment in the first few months of the following year. If so, you may save tax by purchasing the equipment before year-end so you can get the maximum equipment deduction in the current year. If you want to take advantage of this deduction, please contact us concerning other limitations and eligibility requirements. To find this year’s deduction limit and purchase threshold, please see the list provided on our website under Resources titled “Annual Updated Tax Numbers” for this and other limits, thresholds, and rates that change annually.

Consider Starting a Retirement Plan

Starting a retirement plan such as: SIMPLE IRA, SEP IRA or 401(k) plan will allow you to defer tax on your income until you retire when your rates may be lower. In addition, taxes on plan earnings are tax deferred. Consider contacting us to help determine the best plan for your business.

Consider Incorporating

If the net income on your Schedule C business will increase, or continue to be over $50,000, consider incorporating. Incorporation can significantly reduce your self-employment taxes. Further, it can limit your legal liability as an owner. It can also reduce your chances of an IRS audit. Schedule C's are audited more often than S corporations. Please contact us to discuss this matter further. Note: The tax benefit of incorporating your sole proprietorship is from the savings of self-employment taxes. The greater the difference between a reasonable salary and the remaining profit the more tax benefit of being an S corporation.

Fixed Assets vs. Supplies - New Rules

New rules effective in 2014 define and establish thresholds for materials and supplies, clarify when amounts should be capitalized versus being classified as a repair or maintenance, and allow small taxpayers to make elections and expense items previously capitalizable. Additional information regarding these regulations can be found on the FAQs page in the Tangible Property Regulations section on our website.

Favorable Changes for Taxpayers Regarding Repairs and Maintenance

In prior years the IRS's position was that significant amounts spent on tangible property should be capitalized rather than treated as a repair and expensed. The theory was that as a property deteriorated, even through normal wear and tear, costs to bring the property back to its ordinarily efficient operating condition were to be capitalized as an improvement to the property. The new regulations allow taxpayers to expense amounts that are considered costs for repairs and maintenance. Only costs that result in a "Betterment", "Adaption" for a new use, or a "Restoration" are required to be capitalized. Additional information regarding the tangible property regulations can be found on the FAQs page in the Tangible Property Regulations section on our website.