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the 2014 small business tax guide - letterhead with taxes written on it and a piggy bank in front

The 2014 Small Business Year-end Tax Guide

Posted On
Stefan Schumacher

The following blog post will cover:

It might be nice if the tax system remained the same from one year to the next. This would make it easier to understand what is expected of you, how your situation will be treated, and what you can do to reduce your tax liability.

Unfortunately, the IRS is always making changes and 2015 is no different.

Note: As a small business owner, by working closely with a certified public accountant or a payroll service that calculates, files and pays taxes for you automatically, you won't have to worry nearly as much about staying current with recent changes. This person or service will do all the homework for you and pass it on to you at the appropriate time, if necessary.

2015 Tax Changes That Could Impact You

  1. Do you receive payments via Bitcoin? This virtual currency has become so popular that the IRS has taken notice. Moving forward, Bitcoin payments should be included with your annual income. In short, this is taxable income.

You can find more information via this page of the IRS website.

  1. IRA rollover limit. This was never a concern in the past and won't have any impact on your 2014 return. However, starting next year, you are only allowed to make one IRA rollover per 12 month period.

The "IRA One-Rollover-Per-Year Rule" is explained here.

  1. Standard deduction increase. This may not be anything to write home about, but any increase is one you should be excited about.
  • Single or married filing separately: $6,200
  • Head of household: $9,100
  • Married filing jointly: $12,400

If you file your own income tax return, it is essential to personally stay up to date with each and every tax change. Those who hire a tax professional have a bit more leeway, as this person will provide professional guidance and advice.

Year-End Small Business Tax Mistakes to Avoid

With 2014 coming to a close, small businesses all over the country are tying up loose ends as they look forward to the new year.

There is no better time than December to review your tax situation. This includes what you have done over the previous 11 months, as well as what you will do once the calendar turns. Here are several mistakes to avoid:

  1. Underpaying estimated taxes. Did you know that many small business owners are hit with an estimated tax penalty every year? Self-employed professionals, for example, must pay quarterly tax estimates throughout the year.

In the event that you earn less than $150,000, it is your responsibility to make quarterly payments that equal a minimum of 90 percent of your final tax bill or 100 percent of your final tax bill from the prior year.

Neglecting to do so will result in an IRS penalty.

  1. Waiting to make purchases. You never want to spend money recklessly, as this is a habit that can be hard to break. At the same time, if you need to make a purchase, such as equipment for your office, there is no point in waiting until 2015. Doing so now will give you another deduction for the 2014 tax year, thus decreasing your tax liability.

Take a strong look at your business with one eye towards any end of the year purchases that make sense.

  1. Doing it all yourself. There is a lot of work associated with paying taxes, filing final returns, and making sure you are handling employees and contractors in the appropriate manner.

Rather than take on this task alone, consider hiring an accountant and payroll company to provide you with professional assistance. The fee you pay for the service is well worth it in the long run.

These year end tax mistakes have caused problems for many small businesses in the past. Will you avoid a similar fate this year?

2015 Retirement Plan Contribution Limits

As 2014 comes to an end, now is the time to examine your retirement accounts (among other financial details) to ensure that you are on track to reach all your goals.

With retirement plan contribution limits changing slightly in 2015, it is important to know how this will impact your savings plan.

401(k) Contribution Limits

Are you contributing to a 401(k) plan? In 2015, the maximum you can save has increased by $500, reaching $18,000.

Note: this limit also pertains to 403(b), 457 and Thrift Savings Plans.

If you are age 50 or will reach this milestone in 2015, the catch-up contribution limit has increased from $5,500 last year to $6,000 in 2015.

What about an IRA?

The IRA contribution limit for 2015 will remain the same at $5,500 per person, or $6,500 if you are age 50 or older.

While the contribution limit may have stayed the same, the IRS has made some adjustments to the income limits.

The limit for contributing to a Roth IRA has changed in the following ways:

  • Married filing jointly: from an adjusted gross income of $191,000 last year to $193,000 in 2015.
  • Single: from an adjusted gross income of $129,000 last year to $131,000 in 2014.

Do you still have questions about retirement plan contribution limits? Before you reach out to your accountant, review the official IRS announcement here. This announcement, dated October 23, 2014, includes up to date information that is sure to help you better prepare for the year to come.

Tax-Deductible Expenses for the Self-Employed

There are both pros and cons of working as a self-employed professional. From day one, it is essential to have a solid grasp on your tax situation. If you don't, you could find yourself coming up short and landing in hot water with the IRS as well as state and local taxing authorities.

Do you have the desire to reduce your taxable income? Of course you do. The more legitimate deductions you have the less money you will owe in taxes.

If you are new to the world of self-employment, you may not yet be aware of these common tax-deductible expenses:

  1. Self-employment tax deduction. To better understand this, you don't have to look any further than this passage provided by the IRS:

"Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners."

Even though you are required to pay this tax, the IRS cuts you a break by allowing you to deduct the employer portion of the tax when calculating your adjusted gross income.

  1. Home office. While not always the case, many self-employed professionals work from home. The IRS explains this deduction here, but the name pretty much says it all. In short, any space you use exclusively for your business can be deducted.

Tip: you can also take a deduction for your restroom.

  1. Health insurance premiums. One of the downfalls of self-employment is paying for your own benefits, including health insurance. Fortunately, you can deduct the cost of health insurance premiums as long as you are not eligible to receive coverage through your spouse's employer.

Tip: along with health insurance, you can also deduct long term care and dental premiums.

In addition to the three tax-deductible expenses above, here are some others to consider:

  • Internet and phone expenses
  • Meals and entertainment (such as for client meetings)
  • Use of your vehicle for business purposes
  • Any interest paid on business loans

The tax implications of working as a self-employed professional can be confusing at times. To protect against common errors, keep track of each and every deduction while leaning on a qualified tax professional throughout the year.