While you may be thinking turkey, and your children or grandchildren may be thinking Santa Claus, many small business owners are thinking about calling their accountant to settle their business finances for the year and see where they stand. There is possibly nothing more important for a small business owner than to have a knowledgeable accountant that can take care of these important matters for their business. Tax laws and tax breaks for businesses are changing or expiring yearly, talking to your accountant about the changes that will affect you and your business are extremely important, don’t wait till the last minute, and talk to them today.
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Tax strategies for small-business owners
If you’re running your own business, then finding time to keep up on money-saving tax strategies can be a challenge — one that’s complicated by the fact that tax laws are constantly changing.
Here are three simple tax strategies to keep in mind as Dec. 31 approaches.
1. Run the numbers
The best thing you can do before year-end is get your accounting up-to-date and figure out whether you have a profit or loss, said Eva Rosenberg, an enrolled agent who publishes TaxMama.com and is a contributing writer for MarketWatch.
It’s best to do that now, while you still have time to make adjustments. Otherwise, “there’s no way to plan,” Rosenberg said. “I’ve seen too many people come to me and say, ‘Look, I have a $100,000 loss for the year’” — only to discover that the business owner has failed to correctly account for some item, such as inventory.
Small business advice: Hurry, these four tax breaks expire at the end of the year
Fifty-five federal tax breaks are scheduled to expire at the end of the year. Usually, many of these expiring tax provisions are extended at the last minute, but this year is shaping up to be different.
The pressure for additional revenue, combined with political gridlock, has greatly increased the likelihood that many of the most advantageous provisions will not be extended or will be reduced significantly. This challenges business owners to make difficult decisions before the year ends without knowing what rules will be in effect in 2014.
We’ve sifted through all the expiring tax provisions and narrowed the list down to the four most important expiring breaks that every small business should consider taking advantage of before the end of the year.
Use Sec. 179 expensing/bonus depreciation opportunities
Current law enables firms to deduct the cost of purchasing assets like equipment, furniture, and computer software now instead of over a set period of years. The 2013 expensing limit is $500,000, and it is scheduled to drop significantly to $25,000 in 2014. The deduction begins to phase out when total qualified purchases for the year exceeds $2 million. If you have equipment needs, consider purchasing them in 2013
While you hear a lot about the federal income tax, you don’t hear much about the Social Security tax. That’s odd because it’s just as expensive as the federal income tax for many folks, especially the self-employed. Here are five apparently little-known truths about how the Social Security tax works and how much it can amount to.
1. Social Security tax can be a big number if you’re an employee
As an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling. Half the Social Security tax bill (equal to 6.2%) is withheld from your paychecks. The other half (also 6.2%) is paid by your employer, so you never actually see that half. Unless you understand how the tax works and closely examine your pay stubs, you may be blissfully unaware of how much the Social Security tax actually costs.
The Social Security tax wage ceiling for 2013 is $113,700, and it rises to $117,000 next year. If your wages meet or exceed the ceiling for 2013, the Social Security tax hit for this year is a whopping $14,099 (12.4% x $113,700 = $14,099). Once again, half of that will come out of your paychecks, and your employer will pay the other half.
