“In this world nothing can be said to be certain, except death and taxes.”
While we can be certain that we’ll face taxes from time to time, that doesn’t mean that the rules will stay the same from year to year.
Every year we see new laws, new taxes, and new tax breaks that affect individuals, families and small business owners. Let’s take a look at a few of the changes that you may see when you do taxes this year.
New Home Office Deduction Rules
First, a little bit of good news. Back in 2013, we ran a post about the home office deduction, and what is involved with calculating the deduction. You used to need to determine the percentage of your home that your home office takes up and, allocating the costs of utilities, home owner’s insurance and home repair, use that percentage to determine the indirect costs of your home office. You would take that total and add in the costs that directly relate to your home office, like if you painted it or made a repair, to get your home office deduction.
That’s a lot of work, isn’t it?
However, for your 2013 taxes and going forward, the IRS has come up with a new simplified method of calculating your home office deduction. You can now just take a deduction that is equal to $5 times the square footage of your home office space, with a maximum size of 300 square feet. Pretty easy, right? This was put in place to save the taxpayer some time in calculating the deduction.
There is a limit to this deduction. If your income from your business is greater than your expenses (including the home office deduction), you can take the full deduction. If your expenses are greater, you can only take part of the deduction. In addition to this limitation, any excess deduction cannot be carry forward to a future year.
New Depreciation Rules
Do you buy any equipment for your business? It used to be that you could immediately deduct the cost of certain types of property in the year you purchased as an expense, rather than depreciating it over the number of years that the IRS has deemed that you are expected to use the property. You were usually limited to do this on tangible personal property such as equipment and vehicles.
Unfortunately, you will not be able to take this deduction for this coming tax year of 2014 to the degree you used to be able to. Before 2014, you could deduct up to $500,000 of qualifying assets. Starting In 2014, the limit drops to $25,000. Yes, you read that right. You used to be able to take up to $500,000 in section 179 deduction, and you are now limited to $25,000. This probably will result in a drop in equipment sales in the coming years.
Now for some more bad news. You used to be able to take additional first-year depreciation of 50% of the adjusted basis of certain types of property as an expense. This rule expired at the end of 2013, and has not been renewed.
Everyone’s situation is different, so be sure to check with a good accountant to see how the changes in the tax law will affect your tax return. It is better to understand all your options rather than making a rash decision about how to handle something. If you don’t want to leave a comment, shoot me an email at firstname.lastname@example.org.
Chris Peden, CPA, CMA, CFM has over 15 years in the corporate world helping companies meet their regulatory compliance requirements. He also assists small business owners with organizing and making sense of their finance information. You can reach him at email@example.com, or check out his blog at www.theaccountingscribe.com. In accordance with Circular 230 Treasury Department Regulations, we are required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code. If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.
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