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Are You Up to Date on Changes to 2013 Small Business Taxes?

by Liz Hester, Staples® Contributing Writer

Many small business owners dread tax season and the headaches that come with trying to navigate changes to the Internal Revenue Service (IRS) rules. Be sure you’re aware of the changes to small business taxes that proprietors should know as they get ready to settle their 2013 tax bills.

What’s New for 2013 Taxes

While you should consult a professional to make sure you know the latest rules before filing your 2013 tax forms, here are some highlights:

  • Home Office Deduction: One of the biggest changes in small business tax deductions is the calculation for a home office. The IRS has introduced a simplified method that allows home-based workers to write off their office at $5 per square foot with a $1,500 maximum. That’s different from the previous method, which takes into account depreciation on the house, the size of the office space and other variables in a complicated form. Learn how to track other deductions here.“This gives small business owners who work out of their homes the ability to take a simplified deduction,” says Don Zidik, CPA and tax director for Braver in Needham, MA. “If you work with a tax professional, they’ll likely do both and pick which is better for you.” (Learn how to track other deductions here.)
  • Standard Mileage Rate: The business mileage reimbursement rate increases to 56.5 cents per mile for Tax Year 2013.
  • Small Business Tax Rate: Small business tax rates will increase for many. Self-employment tax for Social Security increases to 12.4 percent, according to the IRS. Medicare taxes will have a surcharge of 0.9 percent for those earning more than $200,000.
  • Maximum Net Earnings for Social Security: For 2013 filings, you’ll pay Social Security taxes on earnings up to $113,700. That increases to $117,000 for 2014 taxes, according to Sandra Gohlke, CPA, CGMA and principal at Rehmann in Troy, MI.

Additional Considerations

Contract Workers: Though not new for Tax Year 2013, businesses that use contract workers must file the appropriate form 1099 for those they pay more than $600. “The IRS has been aggressive about assessing penalties,” Gohlke says. “There are some rules to be aware of. Ignoring them can cost you.” Talk to your accounting professional in early January if you hire contractors.

Self-Employment Taxes: For those filing self-employed taxes, separating business from personal expenses can be a hassle, especially when starting out. The key is having separate accounts and staying organized, says Peter Bacon of deButts, Campbell & Roberts in Raleigh, NC. “Make sure your personal is your personal and your business is your business,” he cautions. “Don’t mingle.”

The ACA: It’s never too early to start thinking about filing taxes for 2014, especially given the changes coming to healthcare from the Affordable Care Act. While there are no accounting or tax-related changes that apply to Tax Year 2013, employers need to make sure they provide coverage in 2014 or correctly calculate the penalty if they fall under the new rules. Sitting down with a tax advisor early in the year ensures a good understanding of the rules for 2014.

Tax Resources

Thankfully, many bookkeeping software solutions, such as QuickBooks® and TurboTax®, are fully updated to the new tax code. Even so, always consult with a tax professional.

Leslie Pierson, founder of Retrofitted Designs in Seattle, WA, uses QuickBooks to organize her income and expenses, and outsources her payroll. She says hiring someone to get the payroll taxes correct gives her peace of mind and ensures she’s complying with withholding laws. She suggests hiring a professional bookkeeper to get the software set up correctly, and for small business owners to review all transactions to make sure they’re entered properly.

Paper bookkeeping records can also help business owners stay organized and make tax prep easier. The IRS even offers examples of record-keeping.

The easiest way to keep it all straight, however, may be to outsource taxes completely. David Sonntag, president of Decibel Management in Wake Forest, NC, hired a business advisor to manage his finances so he could focus on running his event management firm and not having to learn new accounting rules.

Make sure you’re up to date and in compliance with changes to tax law by meeting as soon as possible with your accountant or financial advisor. That’s a smart resolution to make for the new business year.

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