Whether you already own a business or you’re starting a new one, you need to know about tax changes that affect entrepreneurs.
If you fail to follow the IRS’s rules about deductions and other matters, your business could face an expensive audit.
Worse, you might miss deductions that could lower your tax bill.
The following are three tax changes that will affect business owners.
Reduced Standard Mileage Rates
As of January 1, 2016, the IRS has lowered the standard mileage deduction from 57.5 cents per mile to 54 cents per mile. This means that if you use your vehicle for business purposes, you must calculate your deductions based on the new rate. You can deduct money only for miles driven on business.
For instance, if you use your vehicle to pick up a merchandise delivery, you can deduct those miles. However, if you’re picking up your child from school, the miles don’t qualify.
Commuting doesn’t qualify. If you’re just driving to the office and back home every day, you’re out of luck. However, several other types of travel qualify for mileage deductions:
- Traveling from one business property to another
- Commuting to and from the airport for business travel
- Visiting customers at their homes or offices
- Traveling to meet business associates for meals and other meetings
If you’re not sure how to handle mileage deductions, consult your business attorney.
Additional Boxes on 1099 Forms
If you work with independent contractors, you have to file 1099 forms instead of standard employee tax forms.
The IRS has made several changes to 1099-related forms, including adding check boxes for foreign financial institutions on some documents. Additionally, if you work with a contractor who accepts credit or debit card payments, there’s a check box for card-not-present transactions.
Working with independent contractors can help you control operating expenses. However, you must use the proper 1099 forms if you want to follow IRS standards. You must send a 1099 form to any contractor who has earned $600 or more over the last year.
New Affordable Care Act Requirements
As of 2016, the Affordable Care Act, or ACA, has expanded to include businesses with 51 to 99 employees during the prior year.
Small enterprises might struggle to meet these requirements, especially if your company employs a number of professionals on the lower end of that spectrum. You’ll still have to offer health insurance coverage, which can increase your total human resources costs.
You might also have to buy software or hire staff members to comply with the new requirements involving employees’ total hours worked and other data.
The IRS might allow you to deduct part of those expenses, so read the law carefully to avoid missing money-saving opportunities.
Tax law can prove more complex for business owners than for employees, but if you keep track of new changes, you’ll keep your taxes under control.
Focus on filing your tax documents correctly and keeping your receipts and other paperwork handy.