2014 Tax Law Changes & Your Business
Uncle Sam may not collect taxes until you file you rturn this year, but there are things small business owners can do now to prepare. After all, wait until tax time and you’ll be scrambling not only to get your paper work in order, but potentially even to find the funds to pay your bill.
There will be a lot of shock to businesses when they finally complete their tax filing for calendar 2013, becuse there are a lot of changes including a significant increase in the tax rate. The New Year will undoubtedly bring a lot of tax changes, some of which kicked off in 2013. Because of that, some tax professionals argue it’s a good idea for small business owners to do a tax projection now so they will know how much they will be on tap for come 2014.
One of the biggest changes that may impact small business owners is the tax rate for the top federal wage. The top rate jumped from 35% to 39.6% this year, which could be a big increase for some business owners. Keep in mind you have to make over $400,000 as an individual and $450,000 as a married couple to be taxed at the highest rate, but others, at lower levels of income, may also be impacted by the increase in the federal income tax rate.
In addition to the income tax rate increasing, small business owners will have to contend with an uptick in the long-term capital gains rate if they fall into that highest tax bracket. According to Wind, the capital gains rate goes to 20% from 15%. On top of that, there’s a new Medicare tax on investment income, which Wind says adds another 3.8% increase for a total of 23.8%. That new Medicare tax is for singles that have an adjustable gross income over $200,000 and $250,000 for married couples.
“A married couple with taxable income of $500,000, for example, paid 15% on stocks they sold in 2012 that were owned for more than a year and this year they pay 23.8%,” he says. “That’s why this year, 2014 and going forward it’s really a good idea to run a tax projection."
In addition to tax changes, small business owners also have to deal with the complex nature of doing business in multi states. According to Crocetti, companies that do business across states have to deal with all types of notices and announcements regarding sales tax, income tax, use tax and various property taxes.
State taxes are becoming a huge part of any small business planning because of their multi-state activity, The enormity of the filing and the compliance is daunting and costs the small business a lot of money just from a compliance standpoint. Because of the avalanche of forms and filings, people have to do more planning than at any time they had to in the past several years. If you don’t plan you are going to get socked with a huge tax bill both from the Federal government and the state, an online payroll service, is an ideal way to prepare for tax time now is to figure out all the forms you will need to fill out, and get your hands on them now.
You want to make sure you get a head start so you don’t get penalized and incur fines. One mistake a lot of small business owners make is not going over their employees’ records to ensure they didn't move, get married or change their withholdings. Reeves says a smart year-end exercise is to go through the employee base and make sure all the information is up-to-date and to ensure all the termination documents from former employees is filed with the proper arms of the government. A lot of times business owners will terminate an employee and forget to go through all the procedures, If you don’t report the termination, certain parts of the government will still view you as the employer.