Though everyone knows when tax season is, it always seems to catch many people off-guard. Like it or not, though, when tax time comes, it’s crucial that all small business owners gather their documents and start filing right away.
The fact that tax laws change every year is almost as predictable as tax season itself. However, what isn’t predictable – and is often very confusing – are the ways in which these laws change.
This year, small business owners should be aware of these facts:
Bonus depreciation will stay the same – for now
Bonus depreciation is a tax credit that applies to businesses that purchase new capital equipment. If you qualify for it this year, don’t let it pass you by. You can deduct half of the cost of the new equipment purchases you made this year.
The percentage that you can deduct will begin decreasing little by little after this year, though. After 2019, this tax break will be extinct, Business News Daily explained.
A new I-9
Using the most updated forms is important for any part of running your business. At the start of this year, one important form got a makeover. The I-9, the form used when verifying that a new employee can legally work in the U.S., was simplified, according to Affiliated Workers Association. Plus, a first name is no longer needed – just your employee’s surname.
Fewer cents per mile
If you use your car for business purposes, you’ve probably been logging every mile of business use so you can get cash back when you file your taxes. For 2017, you’ll be getting fewer cents per mile compared to 2016: the new rate is 53.5 cents per mile.
The IRS explained that it takes factors like fluctuating gas prices and other basic car-operating expenses when it decides the mileage rate, according to The AP.
For business owners planning on taking advantage of car-related tax breaks, remember you can only claim the standard rate for the first year you drive the car for business use, Affiliated Workers Association advised. That means there are two circumstances that qualify: either you just bought your car this year, or you just opened your business this year.
Stand-alone HRAs make a comeback
Some small business owners like to use Health Reimbursement Arrangements to help employees offset health care expenses when a group insurance policy is too pricey to justify. Under the Affordable Care Act, they were largely outlawed because they often didn’t meet the law’s minimum requirements. However, former President Obama signed them back into law just before he left office through the 21st Century Cures Act.
The new HRAs have slightly different rules than the ones small businesses used before the ACA went into effect. The new maximum an employer can contribute is $4,950 for an individual or $10,000 for a family.
Work Opportunity Tax Credit extended
The Work Opportunity Tax Credit has also been extended until 2019, according to Business News Daily. This credit encourages business owners to hire long-term unemployed applicants. The extension added a 40 percent credit for the first $6,000 paid to a new hire that had previously been unemployed for 27 weeks or longer.
The equipment purchase deduction was increased from $500,000 to $510,000 this year, according to The AP. Plus, some essential business purchases were added to the list of qualifying items, including off-the-shelf computer software. Section 179 can be applied to both used and new equipment, as long as the purchase is put into use during the same tax year.
Tax season isn’t the funnest time of year, but it is important that you get your taxes on time. Also, it’s in your business’s best interest to know the latest tax rules and understand what exemptions apply to you.