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Good News for Home-Based Business: IRS Simplifies Home Office Deduction

January 31st, 2013 ::

By Karen Axelton

If you are a home-based business owner but have never claimed the home office tax deduction because you don’t want to deal with the complex reporting and calculation that’s required—or because you’re afraid making a mistake could trigger an IRS audit—you can breathe a little easier this April. That’s because the IRS has announced a simplified, optional method for claiming the home office deduction.

The new optional deduction allows taxpayers to claim $5 per square foot of home office space up to a maximum of 300 square feet, or $1,500 per year. Currently, small businesses and others claiming a home office deduction have to complete Form 8829, a 43-line form that includes complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers who want to claim the optional deduction instead will complete a much simpler form.

The IRS estimates the change will affect more than 3.4 million taxpayers (the number who claimed the home office deduction in tax year 2010, the most recent year for which the agency has data) and will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours per year.

Here are a few things to be aware of in deciding whether you want to claim the traditional home office deduction or the optional simplified verson:

  • Homeowners using the simplified option cannot depreciate the portion of their home used for business. However, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions do not have to be allocated between personal and business use, which the traditional method requires.
  • Since the optional deduction has a cap of $1,500, if your home office is significantly bigger than 300 square feet or if you have extremely high utility bills or other costs, you may want to stick with the traditional method of claiming deductions.
  • No matter which method you use, you still have to meet the current restrictions regarding the home office deduction. For example, the home office must still be used regularly and exclusively for business, not for personal use.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. For more details on the new option, visit the IRS website to read Revenue Procedure 2013-13.

Image by Flickr user james.thompson (Creative Commons)

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Posted in Accounting and Taxes, Compliance, Small Business, small business | No Comments »

Web.com Small Business Toolkit: DeskTime (Time/Project Tracking)

January 29th, 2013 ::

DeskTime

With so many readily available distractions threatening to zap your employees’ productivity, it might be a good idea to keep an eye on exactly what your staff is doing on their computers. Are more hours spent on Facebook during the workday than on getting those invoices out? What about punctuality? DeskTime is designed to find and eliminate wasteful habits. Plus, the reports system shows both the entire company’s work results as well as those of individuals. Don’t worry about invading your employees’ privacy: The system only records application names, website URLs, start times and end times, never anything sensitive such as keystrokes or form input. DeskTime is especially helpful for virtual companies.

 

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Posted in Accounting and Taxes, Compliance, Resources, Small Business, small business, Workforce | No Comments »

Web.com Small Business Toolkit: PEX Card (Business Prepaid Card)

January 28th, 2013 ::

PEX Card

Is your company’s spending getting out of control? Are you finding it hard to keep track of employee expenses? PEX Card is a business prepaid card specifically designed to help companies take control of employee expense management. For a monthly per-card fee, businesses can distribute funds for employees to spend and then keep track of transactions as they occur. There are no transaction fees and no interest charges, and businesses gain more power over the company’s cash flow. You or your internal PEX Card administrator can easily add funds to your employee cards through the PEX website; that money is available to employees immediately.

 

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Posted in Accounting and Taxes, Compliance, Resources, Small Business, small business | No Comments »

Web.com Small Business Toolkit: Lemon Wallet (Digital Credit Card App)

January 25th, 2013 ::

Lemon Wallet

Ever forget to bring the right credit card when you’re out with a client? Or perhaps you’ve had your wallet lost or stolen and have had to spend hours on the phone canceling and replacing all your cards. Lemon Wallet allows you to scan and digitize all the information on your credit cards for easy retrieval on your phone. Merchants can then scan the image on your phone to download your card information for your purchases. Lemon Wallet also keeps your credit card balance handy and allows you to store your receipts digitally so you aren’t in danger of losing track of expense receipts. Lemon Wallet works on all mobile devices.

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Posted in Accounting and Taxes, Compliance, Resources, Small Business, small business, Technology | No Comments »

Web.com Small Business Toolkit: Wave (Cloud-Based Business Finance Tools)

December 31st, 2012 ::

Wave

Microbusinesses (those with fewer than 10 employees) have specific accounting needs, and Wave Accounting wants to be the solution. Recently, Wave released a completely new product suite, a new website and new personal finance tools. Wave’s cloud-based products help small businesses with their customer transactions, invoicing, receipts management and personal finance. Plus, new mobile apps will be launched in January for payroll management and receipt scanning–everything the small business owner needs in one convenient online location. The tools are perfect for freelancers, consultants and contractors that need invoice customization, choice of currency and the ability to seamlessly convert estimates and quotes into invoices.

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Year-End Tax Planning for Your Small Business

December 18th, 2012 ::

By Karen Axelton

The end of the year is coming, and that doesn’t just mean holiday celebrations—it also means you only have a matter of weeks to take advantage of some last-minute tax strategies that can save you money.

Contribute to your retirement plan. If you haven’t already contributed the maximum this year and you want to lessen your tax bite, make an extra contribution to your plan before December 31. (Don’t have a retirement plan? There are many options available even for solo business owners, so start investigating and set up a plan for the New Year.)

Make charitable contributions. This is another way to reduce your taxes owed. Consider donating outdated equipment, vehicles or other business assets to a school or nonprofit organization that can use them, and your business can get a deduction.

Make major purchases now. For the past few years, small businesses have enjoyed an expanded Section 179 expensing deduction. For 2012 the annual limit is $139,000, meaning you can expense up to $139,000 in furniture and equipment your bought for your business in 2012. Currently, this limit is scheduled to shrink to just $25,000 for 2013, so if you’re considering a major purchase or buying new equipment, now might be the time to take the plunge.

Accelerate expenses and defer income. If your business operates on a cash basis, you can apply this strategy. Pay expenses before the end of the year (charging expenses on credit cards is considered payment) and give your clients a little extra time to pay you so you don’t have the payments in hand and don’t have to declare the income on your taxes.

Take advantage of the health care tax credit. If you have fewer than 25 employees and provide health insurance for them, you may be eligible for a tax credit going back to 2010. Eligibility depends on factors including your employees’ average wages and how much of the insurance premium you contribute. Visit the IRS website for details on the tax credit and how to claim it.

Get organized. You don’t want to be dumping a shoebox full of receipts on your accountant’s desk at tax time. Start now to pull together the records and paperwork you’ll need for your business’s tax return. This way, you can get any missing documents together in plenty of time. Getting better organized will help ensure you don’t miss out on any deductions that are rightfully yours—and that saves you money.

Consult your accountant. The right year-end tax moves for you will vary depending on your business, so check with your accountant now to determine what last-minute strategies you can use to cut your tax bill and maximize your income.

Image by Flickr user Images of Money (Creative Commons)

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Posted in Accounting and Taxes, Compliance, Small Business, small business | 1 Comment »

Small Business Optimism Takes a Nosedive Post-Election

December 13th, 2012 ::

By Maria Valdez Haubrich

The recent presidential election seems to have put small business owners into a tailspin—at least, it has if the latest Wells Fargo/Gallup Small Business Index is any indication. In November (post-election), the Index dropped to -11, down from 17 in July. Entrepreneurs have not been this pessimistic about their businesses since July 2010.

The Index measures small business owners’ current feelings about their businesses, including financial status, ease of getting capital and credit, sales, cash flow, number of jobs. In the first two quarters of the year, small business owners were becoming increasingly optimistic, and the Index hit a high of 23 in May. (For comparison, before the Great Recession hit in 2008, the Index was almost always above 100.)

In November, small business owners’ future expectations for their financial situation, cash flow, capital spending and hiring during the next 12 months all worsened significantly, Gallup says. Specifically:

  • One in five small business owners (21 percent) believe the number of jobs at their company will decrease over the next 12 months. That’s the highest percentage Gallup has measured since the Index began in 2003.
  • One in three (34%) predict their company’s capital spending will decrease over the next 12 months — the highest percentage since July 2010.
  • Some 30 percent of small business owners expect “poor” cash flow during the next 12 months — the highest Gallup has measured to date.
  • Some 28 percent expect to be in a “poor” financial position 12 months from now — the highest Gallup has measured to date.

While future expectations were primarily responsible for the overall drop in the Index, the small business owners’ assessments of their current operating conditions also declined in November, falling 9 points to -10.

The results suggest small business owners, who were previously fairly neutral about current operating conditions, have become pessimistic not only about the future but the present as well.

“As entrepreneurs, small-business owners tend to be optimistic by nature, and relatively more optimistic about the future than the present,” Gallup’s results note. Will the small business owners’ outlook lead to a weakened economy going forward? If small business owners live up to their plans to cut capital spending and reduce the number of jobs at their companies, it could do so.

How do you feel about the results? Do they jibe with your outlook?

Image by Flickr user M Hildingh (Creative Commons)

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Posted in Accounting and Taxes, Capital Access, Compliance, Raising Capital, Small Business, small business | No Comments »

Time Is Running Out to Claim This Small Business Tax Credit

December 11th, 2012 ::

By Karen Axelton

It’s hard to believe, but many returning military veterans have a hard time finding civilian employment once they return from active duty or deployment. Your small business can help a veteran and enjoy tax credits at the same time thanks to recently expanded tax credits created by the VOW to Hire Heroes Act of 2011.

There’s one catch–your small business needs to act soon. Under the newly expanded Work Opportunity Tax Credit (WOTC), employers can receive thousands of dollars in tax credits, but only if the veteran hired started work on or after November 11, 2011, but before January 1, 2013.

The VOW to Hire Heroes Act added two new categories to the existing qualified veteran targeted group and expanded the WOTC to include certain tax-exempt employers. The credit may be as high as $9,600 per qualified veteran for for-profit employers or up to $6,240 for qualified tax-exempt employers.

In order to be considered a qualified veteran, the individual must:

  • Have served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or have been discharged or released from active duty for a service-connected disability, and
  • Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date.

There are certain other qualifications that may apply, which you can find at the IRS’s FAQ page about the Work Opportunity Tax Credit.

The amount of the tax credit your small business or nonprofit organization is able to claim will depend on several factors, including how long the veteran was unemployed before being hired, the number of hours the veteran works and the salary or wages the veteran receives during the first year in your employment. If you hire a veteran with service-related disabilities, your business may be eligible for the maximum tax credit.

In order to claim the tax credit, employers will need to file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency within 28 days after the qualified veteran starts working at the business. To find your state workforce agency, visit the U.S. Department of Labor’s WOTC website. Visit the IRS website for additional details about qualification and paperwork required.

Image by Flickr user Sam0hSong (Creative Commons)

 

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Web.com Small Business Toolkit: Texthog (Expense Tool)

December 7th, 2012 ::

Texthog

If you’re trying to get your year-end expenses in order and seeing another tax season nightmare approaching, make it your New Year’s resolution to get better organized in 2013. Keeping track of personal and business expenses is much easier with an app like Texthog, which can easily store and organize your receipts, expense reports and mileage tracking via text message, Web, email, iPhone and Twitter. Simply take a picture of the receipt on your phone or tablet, quickly tag it for the right expense category and forget about it. It will all be ready for reference whenever you need it. You can even use Texthog as a bill reminder to avoid late payments.

 

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Web.com Small Business Toolkit: K&A Health Care Credit (Health Care Credit Evaluator)

November 14th, 2012 ::

K&A Health Care Credit

Not sure if you qualify for the Health Care Tax Credit? Kellogg & Andelson want to help you figure it out. The Small Employer Health Insurance Tax Credit (IRS Code Sec. 45R) is part of the Patient Protection and Affordable Care Act (PPACA), President Obama’s signature health care law that was upheld by the Supreme Court earlier this year. You might be eligible to receive a tax credit of as much as $50,000 per year for 2010 and 2011. Up to 4 million employers may be eligible for the credit, yet fewer than 172,000 claimed it in 2012 because some were unaware and others found the calculations too complex. K&A will help you determine whether you qualify and then prepare your paperwork to help you get what’s owed you.

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