Every year, there are several changes to tax laws. Sometimes these work in your favor, and sometimes they'll hurt you. This year is no exception. Like every other year, there are several changes that'll take place. As a business owner, you need to be aware of them. Here are a few taxation law changes that you need to be aware of.
Changes to Section 179
There are some changes coming to section 179. Section 179 allows a taxpayer to deduct the cost of certain types of property as an expense rather than requiring the cost of the property to be capitalized and depreciated. In the past, you could deduct up to $500,000 of qualified property that was placed in service in 2013, which was subject to a phaseout above $2 million. As of this year, that changes. The maximum deduction plummets to a paltry $25,000 with a phaseout threshold of $200,000.
Home Office Deductions
For those of you fortunate to operate out of your house, there's a change that you should be aware of, but this one's for the better. For your 2013 return, the IRS has simplified home office deduction. The new optional deduction is $5 for each square foot of the space you use for your home office, with a maximum of 300 feet, equaling a $1,500 annual home office deduction.
When you file, instead of filling out Form 8829, there will be a worksheet that you'll use in the Schedule C instruction book. The requirements to be considered a home office remain the same. If you're using that space to take online classes so you can get your degree (possibly even in a tax related field so you can understand tax law better), you won't be able to deduct the space — the space must be used for business only.
Tax Rate Increases
The tax rate for the top federal rate is changing. Instead of it sitting at 35 percent, it's jumping to 39.6, which is a pretty substantial increase for small business owners. To be taxed at the highest rate, your business has to make $400,000 as an individual or $450,000 as a married couple. Even if you're not taxed at the highest rate, it's possible that you'll be impacted by the federal income tax rate increase.
Capital Gains Rate Increase
If you fall into the highest tax bracket, you'll have to deal with an increase in the long-term capital gains rate. The capital gains rate is increasing from 15 to 20 percent. There's also a brand new Medicare tax on investment income. This adds an additional 3.8 percent, bringing the total increase to 23.8 percent. The Medicare tax only applies to individuals with an adjustable income more than $200,000. If you're married, your adjustable gross income must be more than $250,000.
These four changes are ones that you should be aware of as a business owner. Though they may seem small and insignificant, these changes could cause quite an impact on your business's bottom line. Hopefully the changes won't have too much of an impact on small business owners.
Have you noticed any other changes to tax law that business owners should be aware of? Leave a comment below and let us know!
Miles Young is a freelance writer, designer and business columnist.