February 27, 2014

7518905_sWhether you are a new or long-time small business, there is just something about hearing that dreaded word:  TAXES.  You’d almost think it was Halloween with the chill that runs down your spine, right?  All kidding aside, the small business element is a critical cog in the U.S. business machine.  Few groups embody today’s entrepreneurial spirit, drive for innovation and unwavering perseverance more than the small business community. Featured below are highlights of select tax legislation that may affect your business. Your CPA can advise you on these and other laws, as well as provide the best strategies for minimizing your tax liability for this filing season and offer year-round, tax-planning services.


For 2013 tax returns, small business owners won’t see much change in what they can deduct, as the new law extended two key rules for your personal business property and leasehold improvements.  There is, however, one exception that comes from the IRS rules affecting tangible business property and when they can be expensed or capitalized.  Have questions on these new rules?  Why not ask a CPA? They can help you take advantage of possible tax savings.

Section 179 Expense

Instead of capitalizing and depreciating the cost of property purchased for use in a business, you can immediately deduct it as a Section 179 expense in the first year. That means you can legally take a much larger expense in the year of acquisition, which can significantly reduce your net income resulting in lower income taxes. Pretty cool, right?  The deduction applies to most tangible personal business property placed in service during the tax year, including computers, office furniture, vehicles and machinery!   This new act allows business owners to use the deduction to write off up to $500,000 of the cost of business property. *CHA-CHING* There is a $2 million investment limit of which to be aware.  Also, the Section 179 expense deduction cannot be greater than the business’s taxable income, although any unused depreciation can be carried forward. Who doesn’t want to reduce their taxes?

Bonus Depreciation

If the cost of the business property cannot immediately be deducted as a Section 179 expense, you might be able to use the 50% bonus depreciation rules.  These rules allow you to write off 50% of certain types of investments in the first year with the remaining cost to be depreciated over the asset’s useful life.  This allowance, which does extend the Act through 2013, generally applies to tangible personal property with a recovery period of 20 years or fewer, as well as to certain buildings and leasehold improvements, office equipment and purchased computer software.  The properties must be new and in original-use conditions.

Start Up and Organizational Costs

So, here’s the down low or DL. (I am trying to be hip for you younger readers. What do you think? Is it working? No?)  You may deduct up to $5,000 of eligible start-up expenses incurred during the tax year.  The balance must be amortized (get your “accounting” dictionaries out) or “financed”, over 180 months, beginning in the month the business was launched.  However, the deduction phases out dollar-for-dollar if costs are greater than $50,000, with no immediate deduction available over 180 months.  Also, different rules and dollar limits apply to start-up costs paid or incurred during other time periods.


You can use a mileage allowance in place of keeping a record of all related expenses and calculating depreciation to determine your deduction for the business use of your automobile.  Records still need to be kept and maintained by the employee and especially the small business owner, when the standard allowance is used.

Health Care

This is probably one of the most widely and emphatically discussed issue today.  During a time of increasing insurance costs, medical coverage has emerged as both a valued employee benefit and top financial concern for small business owners.  Tax benefits in the area did not change significantly; however, your CPA can advise you of the options that best meet your needs and also explain the impact of the Affordable Care Act on your business strategies.

Deductions, Credits, and Tax Advantages

The health care options below are among the many that will continue to have an impact on your benefits decisions and undergo significant change as health care reform legislation continues to roll out.

Medical Insurance Premiums

These premiums that you pay for employee health coverage are deductible. However, different rules apply to S corporations and partnerships.

Small Business Health Insurance Credit

This is available to the small business owners who pay at least half of their employees’ health insurance coverage.  The credit can reach 35% of the employer’s contribution; however, it is subject to certain criteria, including employee number, average wages, premium amounts paid and average premiums by the state for certain coverage.

Value of Professional Advice

You work hard to make your business thrive. You need a tax professional who understands how these provisions affect you, and can provide trusted advice and services not only during tax season, but also throughout the calendar year.

For tax and financial advice based on unmatched knowledge, experience and education, ask a CPA and have a happy tax season!


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