Here we are at mid-year already! It’s not only a great time to take a vacation and cool down, but it is also an excellent opportunity to review the 2013 tax changes and how they will impact your small business this year.
Several of the tax changes impacting small business are related to payroll. If you have one or more employees, you’re probably already aware of these payroll related tax changes. However, if you will be hiring your first employee or converting workers from independent contractors to employees, you’ll want to make sure you are up-to-date on these 2013 tax changes.
Social Security Tax
The employee tax rate for social security increased to 6.2% in 2013, up from 4.2% in 2012. The social security wage base limit increased to $113,700 up from $110,000 in 2012. That means you are required to withhold 6.2% on the first $113,700 paid in wages during the calendar year.
The Medicare tax rate of 1.45% each for the employee and employer remained unchanged from 2012. However, if you have any high wage earners on your payroll, additional withholding is required. You must withhold an additional 0.9% from taxable Medicare wages paid over $200,000. This additional Medicare tax only applies to employees, not to you as the employer.
On the positive side, if you include the profit from your business as income on your personal tax returns, a cost of living adjustments for 2013 mean you likely won’t get pushed into a higher tax bracket if you make more money this year, which hopefully is the case. However, there is a new top income tax bracket that will be affecting individuals. If you are fortunate to have taxable income over $400,000 (single) or greater than $425,000 (heads of household) or more than $450,000 (joint filers), the new top bracket is 39.6 percent.
Other tax changes likely to impact small business owners include those related to Flexible Spending Accounts, Retirement Plans, and Deductions for Qualifying Assets. Especially if your business is going through substantial changes this year, you’ll want to review the outlined tax changes below to see what you need to know as a small business owner.
Flexible Spending Accounts
Another change this year is a limit of $2500 on employee contributions to flexible medical spending account (FSA’s) Prior to 2013, individual companies set the cap with most averaging around $5000.
The amount companies can contribute on a tax deductible basis for qualified retirement plans is up to $51,000 in 2013–an increase of $1,000 from 2012.
Deductions for Qualifying Assets
As a small business owner, you’ll be able to deduct the full cost of purchasing a qualifying asset. Previously, you were required to depreciate assets over several years.
If you have any questions about these tax changes or other tax and accounting issues, please give me a call or send an email.