2013 Tax Tips for Small Businesses
By: Barbara Weltman, author of J.K. Lasser’s Small Business Taxes 2014 (Wiley, 2013)
The 2013 tax return countdown is on. Tax strategies, old and new, can help cut your tax bill. Here are five tax tips to help you.
1. Claim your full write-offs
Tax limits, thresholds, and ceilings change from year to year, so don’t assume that deduction limits or tax rules from prior years apply now. Failing to learn what’s new could result in your shortchanging yourself. For example, if you deduct your business driving using the IRS standard mileage rate, be sure to note that the rate for all of 2013 is 56.5¢ per mile (a penny per mile higher than in 2012).
If you’re self-employed, don’t forget to deduct one-half of your self-employment tax. It’s a personal (nonbusiness) deduction, but you don’t have to itemize to claim it.
2. Make decisions about writing off equipment purchases
For 2013, there are three possible ways to deduct the cost of equipment (such as computers) and machinery:
- Regular depreciation, which spreads deductions for the cost over 5, 7, or other periods fixed by law.
- Bonus depreciation, which allows 50% to be deducted immediately.
- First-year (Section 179) deduction, which limits the first-year write off to $500,000; it can be combined with regular and bonus depreciation for an even greater deduction in 2013.
The deduction rules vary with each option. For example, bonus depreciation applies only to new property (not to pre-owned items); it applies automatically, but can be waived. First-year expensing is only beneficial if you are profitable; if desired, it must be elected. Work with a tax advisor to look not only at your tax picture for 2013, but also look ahead to determine which write-off is best for your situation.
3. Take post year-end action
Even though the tax year has closed, it is not too late to make certain payments that can still reduce your 2013 taxes:
- Contributions to qualified retirement plans. As long as the plan was set up by December 31, 2013, you can contribute up to the extended due date of your return. If you have not already set up a retirement plan, you have until the extended due date of the return to set up a SEP. Contributions to a SEP, like a profit-sharing plan, can be made up to the extended due date of your return.
- Contributions to health savings accounts (HSAs). If you were covered by a high-deductible health plan (HDHP) in 2013, you can contribution to a health savings account for 2013 up to April 15, 2014 (there is no extra time even if you obtain a filing extension). As long as you had HDHP coverage for all of December, you can make a full year’s HSA contribution.
4. Get a filing extension if you need it
While the IRS will begin accepting business returns for filing on January 13, 2014, and individual returns on January 31, 2014, the filing deadline for 2013 returns remains March 17, 2014 (March 15 is on a Saturday this year), for corporations, and April 15, 2014, for individuals, partnerships, and limited liability companies (in most cases).
If you do not have all the information you need to complete your return or for any other reason, you can request a filing extension. For example, if you are an owner in a limited liability company that has not provided you with a Schedule K-1 by the time you have to file your personal return, simply request a filing extension.
Individuals requesting a filing extension should use Form 4868; partnerships, limited liability companies, and corporations should use Form 7004.
The extended due date for filing a 2013 return depends on your return:
- Corporations (both C and S): September 15, 2014. (This also becomes the deadline for S corporations to give Schedule K-1s to their shareholders.)
- Partnerships and limited liability companies: September 15, 2014. (This also becomes the deadline for these entities to give Schedule K-1s to their owners.)
- Individuals: October 15, 2014.
5. Pay estimated taxes for 2014
If you report your share of business income on your personal return (e.g., you’re a sole proprietor or an owner in a limited liability company), you probably have to pay estimated taxes to cover your anticipated tax bill for 2014. The first estimated tax payment for the year is due on April 15, 2014. This date applies even if you obtain a filing extension for your 2013 income tax return.
You can pay electronically using EFTPS, which is a free Federal service for this purpose.
Caution: Don’t wait until you file your return for the year to pay the tax you expect to owe. This will cost you in tax penalties. Even worse, come April 2015, you may not have the lump sum needed at that time to pay your 2014 tax; better to pay in installments as required.
The Last Word
Action on your part can minimize your tax bill for 2013 and avoid interest and penalties this year and next. The sooner you start, the easier it is to complete actions on time.
Any questions? Talk with a tax advisor.
Reprinted with permission of John Wiley & Sons, Inc. Barbara Weltman, J.K. Lasser’s Small Business Taxes 2014
Legal Disclaimer: None of the information provided herein constitutes legal advice on behalf of Monster.