There’s still time to take advantage of some financial opportunities that could lower your 2014 taxes. Mike Calahan, tax services manager at owner-operator financial services provider ATBS, has prepared a good summary of such moves, as well as other year-end tax-related matters to consider.
Here are the basics, but you can get more detail by reading his full post:
CHARITABLE CONTRIBUTIONS. Donations of cash or certain material goods to a qualifying charitable organization can help reduce your tax bill if you itemize your deductions. The donations must be made by Dec. 31.
DEPRECIATION LIMIT. Buying business equipment by Dec. 31 creates the option of depreciation deductions. This week the Senate passed an extension that increased the expensing limit from $25,000 to $500,000. That easily covers the price of even a new truck; used trucks are eligible, too. As in the past, a heavy-duty truck can be depreciated over three years, which means it affects four tax years because the first and last recovery years are required to take half-year depreciation, Calahan says.
BONUS DEPRECIATION. The Senate also extended for 2014 a 50 percent bonus depreciation that had expired. Only new equipment is eligible. “Bonus” means 50 percent depreciation deduction could be applied in 2014. The other 50 percent would be depreciated over the remaining useful life of the equipment, starting with 2014.
OTHER YEAR-END EXPENSES. On a smaller scale, the cost of equipment that would not be depreciated, such as tools, will reduce your taxable income if it’s bought by Dec. 31. Not just truck equipment, but expenses such as home office supplies, insurance premiums and trips to the bank can be deducted if business-related.
INDIVIDUAL RETIREMENT ACCOUNTS. You can reduce your taxable income by making a contribution to an IRA. The law even lets you wait until April 15, 2015, to pay a contribution of up to $5,500 ($6,500 if you’re age 50 or older) for your 2014 tax return.
HEALTH CARE. This gets a little complicated because of the Obamacare regulations and penalties, but your health insurance provision or lack therefore during 2014 could affect your taxes. Your arrangements for health care during 2015 likewise will affect your tax bill in April 2016, and the penalty increases for those who forego health coverage.
LEGAL BUSINESS STRUCTURE. Some owner-operators can improve their tax situation by converting to an S corporation. Calahan says it starts to make sense if net income is greater than $65,000 a year. Income under an S corporation is not subject to self-employment tax.
ESTIMATED TAX PAYMENTS. Owner-operators, being self-employed, should be paying about a fourth of their estimated tax bill every three months, plus a smaller amount for state taxes. If you’re behind on this, try to make a larger fourth quarter payment, due Jan. 15, to stay in the good graces of the IRS.