with Bridget Jackson, CPA and PPA Business manager
Say hello to your newest guest column! It comes to you from none other than Bridget Jackson, resident guru for all things numbers and profitability. Bridget is the manager of PPA Business and also a CPA. She's helped hundreds of photography studios be more profitable and will address some common questions each month. Heed her advice folks--this lady knows her stuff!
Hopefully you've filled out your taxes for 2013 by now, but if not, Bridget's got your back! She's got some advice on how to get the most out of your 2013 tax return. Here are some last minute tips for you slackers.
There's plenty to be on the lookout for in these last couple weeks of tax season!
1) The first tip is a big one for you photographers! Are you familiar with Section 179 of the Internal Revenue Code? It allows a taxpayer to elect to deduct the cost of certain types of property on their income taxes as an expense, rather than requiring the cost of the property to be capitalized and depreciated. This property is generally limited to new or used tangible, depreciable, personal property which is acquired by purchase for use in the active conduct of a trade or business. This means you might be in line for some tax breaks on your photography purchases as long as they were done for your business. The deduction is limited to the taxable income of the business.
2) How about even more money coming your way? Bonus Depreciation means you can take an additional 50% special allowance for new qualified property placed in service in 2013. The allowance is an additional deduction you can take after any Section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. There is no taxable income limitation. If your 2013 business income is low, opt to depreciate equipment purchases over time rather than all at once.
NOTE: You can't depreciate more than you purchased! For instance if you buy a computer for $3,000 and you take section 179, you only get $3,000. You would not get any additional depreciation under bonus deprecation. Talk to your accountant to ensure you file these purchases correctly!
3) Think ahead! Effective for tax years beginning on or after Jan. 1, 2014, the De Minimus Safe Harbor Election can elect to treat amounts paid to acquire, produce or improve tangible property costing $500 or less as an expense, rather than capital. The election is made annually by including a statement with the taxpayer's timely filed original tax return for the year elected.
4) Do you have a home studio? Home Office Deduction is for the 100% business use of a portion of your home. Determine whether you can use the simplified home office deduction, which allows you to write off $5 per square foot of home office space, and up to $1,500 for 300 square feet. There is no home depreciation deduction or later recapture of depreciation for the years the simplified option is used. However, due to the maximum deduction of $1,500 for the simplified method, it might be more tax advantageous to use the regular method.
5) The business use of your automobile is based either on the standard mileage method or actual expense method. Keep in mind, once you elect to use the actual expense method you cannot switch back to standard mileage method. The standard mileage rate for 2013 and 2014 is 56.5¢ and 56¢, respectively.
6) Pay estimated taxes. If you're self-employed, don't forget your first 2014 estimated tax payment is due April 15. One way to avoid penalties is to take your 2013 tax liability and pay 100 percent of it (110 percent for high-income earners), split into four installments.
7) Fund your retirement. Yes, it's 2014, but you can still contribute to an IRA for the 2013 tax year through April 15. For tax year 2013, you may deduct a maximum contribution of $5,500 to a traditional IRA if you are less than 50 years old. Those 50 or older may deduct up to $6,500. Contributions to a SEP or 401(k) are required to be made by the due date (including extensions) for filing your federal income tax return for the year.
8) Avoid penalties. Failing to file your tax returns on time or failing to pay taxes you owe will cost you. The corporate tax filing date was March 17, so if your company is organized as an S corporation, every shareholder will be charged $195 a month, for a maximum of 12 months, until your return is filed, if an extension was not requested.
9) Healthcare! In 2014, the Affordable Health Care Act requires that you will either need to keep your current insurance plan, purchase coverage, face a penalty tax or get an exemption. The requirement to have insurance is known as the Individual Mandate. The March 31 deadline has been extended two weeks. The penalty for failing to obtain coverage will be inputted on your 2014 tax return due April 15, 2015. The penalties for 2014 are 1% of taxable income or $95 per adult and $47.50 per child for a maximum penalty of $285. However, the maximum penalty for 2015 increases to $975, and $2,085 in 2016. Beyond 2016, the penalties are adjusted annually for cost of living increases.