Throughout the year, I often discuss taxes with my clients – including the tax changes that affect them as small business owners and the expiring tax breaks that they face on their individual returns. Here are some important changes to keep in mind.
Tax changes for corporations and sole proprietors in 2013:
Health care tax credit. Small businesses that employ fewer than 25 full-time equivalent employees may qualify for the Small Business Health Care Tax Credit. To do so, the employees’ average annual wages cannot be more than $50,000, and the business must pay at least half the premiums for employees’ single health insurance coverage. The maximum credit is equal to 35 percent of the premiums paid by the business. The credit can be claimed in tax years 2010 through 2013 and for any two years after that.
Hiring qualified veterans. Businesses that hire veterans who have served our country can receive certain tax credits. In 2013, the maximum credit for hiring qualified veterans at a for-profit business is $9,600 per worker, while tax-exempt organizations can claim a $6,240 credit per worker.
Deduction for equipment purchases. The Section 179 expense deduction for equipment purchases for 2013 is $500,000 of the first $2 million of certain business property placed in service during the year. For qualified property that exceeds the threshold amount, the bonus depreciation is 50 percent.
Tax breaks for individuals set to expire on Dec. 31, 2013:
Energy-efficient appliances. Taxpayers can get a 10 percent tax credit for eligible items such as pellet stoves or a newer water heater. However, this $500 credit is cumulative since 2006, so it’s possible that the full amount cannot be claimed this year.
IRA distributions for charitable contributions. One way for those who are 70.5 years or older to reduce income and take advantage of other tax provisions is to donate their mandatory minimum IRA distributions to charity, up to $100,000.
Small business stock. Now is an ideal time to invest in small businesses. For stock that is purchased before Dec. 31 and held for five years, 100 percent of the capital gains can be excluded. However, as of January 2014, only 50 percent of the capital gains taxes can be excluded.
Electric vehicles. A tax credit of up to $7,500 is available for four-wheel electric vehicles, ranging from Ford to Fiat to BMW and more. It is important to note that the tax credit for electric vehicles do not technically expire in 2013 because it phases out after 200,000 vehicles are built by the manufacturer.
To determine how tax changes and expiring tax breaks affect a small business or individual return, consult a qualified tax professional.
Chris Smith, CPA, is the owner of CB Smith and Associates, P.C., based in Cumming, and a former corporate controller.