provided by Nicole Albrecht
Here are the small business payroll tax and other business tax changes in effect for 2014 that you need to know about. Included in this list are changes to the Social Security maximum, IRS standard mileage rates, and new additional Medicare taxes that affect self-employed individuals.
Also included are several expired tax provisions: the Work Opportunity Tax Credit, 50% bonus depreciation, and limits to Section 179 deductions.
1. IRS Standard Mileage Rate for 2014 – The IRS standard mileage rate has changed for 2014. Here are the rates: * 56 cents per mile for business miles driven, * 23.5 cents per mile driven for medical or moving purposes, * 14 cents per mile driven in service of charitable organizations.
These rates are in effect for the entire year for businesses taking the standard mileage deduction.
Businesses may decide to deduct mileage using either the standard mileage rate or actual expenses. If you drive less than 50% for business, you probably want to use the standard rate, but if you drive over 50% for business, adding actual expenses might be better.
2. Increased Social Security Maximum Tax in 2014 – The tax rate for Social Security remains the same but the maximum deduction has been increased for 2014, to $117,000. This maximum affects employees and it also affects small business owners who must pay self-employment tax.
If a business owner also has income from employment, employment income is considered first, then earnings from self-employment. Read more about how the Social Security maximum works for income from employment and self-employment. More »
3. Additional Medicare Taxes – Beginning with tax year 2013, an additional Medicare tax rate of 0.9% is applied to combined employment income and self-employment income above these levels:
* Married filing jointly – $250,000
* Married filing separately – $125,000
* Single – $200,000
* Head of household (with qualifying person) – $200,000
* Qualifying widow(er) with dependent child – $200,000
This additional tax must be withheld from employee pay above $200,000. For self-employed business owners, this additional Medicare tax is included in self-employment tax calculations.
In addition, also beginning with the 2013 tax year, a net investment income tax of 3.8% on investment income is imposed on higher income individuals, including business owners.
4. Bonus Depreciation Expiring for 2014 – For 2013, businesses were able to deduct up to half the cost of new equipment through a special bonus depreciation deduction, with the rest of the cost depreciated over the useful life of the equipment. Bonus depreciation won’t be available for the year 2014, except for long production period property and noncommercial aircraft. This tax provision was reduced for 2014 by Congress, which may decide to restore previous levels.
5. Section 179 Deduction Limit Cut to $25,000 – Businesses can expense the entire cost of equipment in the year of purchase under Section 179, rather than spreading out the cost over multiple years using regular depreciation. For 2014, businesses can expense up to $25,000 (down from $500,000 in 2013).
Qualified leasehold improvements, qualified restaurant and retail improvements can be depreciated over 15 years if the asset is placed in service during 2013. For 2014, these assets will be depreciated over 39 years.
6. Work Opportunity Tax Credit Not Available – The legislation authorizing the work opportunity tax credit expired at the end of 2013. This legislation allowed employers a tax credit for hiring workers in specific categories, including veterans, food stamp recipients, and workers in certain targeted areas.
If you have any questions or would like to schedule an appointment with one of our tax professionals, please contact our office at (951) 719-1515.
