Small Business Tax and Health Care Reminders for the 2014 Tax Season

As we head into the home stretch of the 2014 filing season, here are a couple of reminders related to returns that include Schedule C or other small business income tax returns.

Simplified Home Office Deduction
Beginning with Tax Year 2013 returns, a taxpayer may choose to calculate their home office expense by using the new simplified method thus removing the requirement to file Form 8829 (Expenses for Business Use of Your Home).

By using the new simplified method, the taxpayer may use a flat deduction amount of $5 per square foot for up to 300 square feet of their home for business purposes.

If this method is used, then the entire allowable home mortgage interest and property taxes may be claimed on Schedule A.

It is important to note that the criteria for claiming an office in home deduction does not change if the taxpayer chooses to use the simplified method.

For more details see the Simplified Option for Home Office Deduction page on IRS.gov and/or the 2014 Schedule C instructions for Line 30.

Small Business Health Care Tax Credit
The Small Business Health Care Tax Credit is available to businesses with fewer than 25 full time employees with average wages of less than $50,000. To be eligible, a qualifying employer must provide health insurance that covers at least 50 percent of the cost of single health care coverage for their employees.

Eligible small employers may claim this credit by completing Form 8941 (Credit for Small Employer Health Insurance Premiums) and including it with their 2013 federal tax return.

Credit is calculated on a sliding scale with a maximum credit of 35% of the employer's contribution that is made for their employees' health insurance premiums.

Maximum credit is available to employers with 10 or fewer full time employees and average wages of no more than $25,000. The credit is then reduced based on each additional employee and for each $1,000 increase in the average wages until the limits are reached.

For more information on the Small Business Health Care Tax Credit see the following:

• 2013 Form 8941 instructions
• What You Need to Know about the Small Business Health Care Tax Credit page on IRS.gov.
• IRS news article of March 10, 2014 encouraging small employers to take advantage of the Small Business Health Care Tax Credit.

IRS Health Care Tax Tips and Reminder about the Premium Tax Credit for 2014 Returns

Even though most tax provisions of the Affordable Care Act do not begin to affect federal tax returns until next filing season, the provisions will have an impact on the decisions taxpayers make if they need to obtain their health insurance through an Exchange and they receive the advanced premium tax credit (subsidy) to help them pay for their premiums. Below you will find more IRS resources available to taxpayers that help explain the tax provisions and a reminder about the Premium Tax Credit.

New IRS Health Care Tips Page
The IRS has added a Health Care Tax Tips page to their website to help individuals understand how the Affordable Care Act may affect their taxes beginning with their 2014 federal return.

At the present time this site provides links to information on:

• Premium Tax Credit
• Why it is important for individuals who obtain health insurance through an Exchange and receive a subsidy to help pay for their insurance premiums to inform the Exchange of changes in their income or family size during 2014
• Overview of the penalty for not obtaining health insurance and who is exempt from the penalty provision
• Where to obtain more information on health insurance exchanges, other tax law provisions of the Affordable Care Act, and individuals’ health care choices

The IRS will be adding to this site throughout 2014 so be sure to check it periodically to see what new information the IRS has posted.

Premium Tax Credit
Even though the calculation of the premium tax credit will not take place until next year, it is essential to become familiar with this credit. Doing so will enable you to better explain to your clients who received a subsidy how it will affect them when they file their 2014 federal return next filing season.

Below is a brief overview on the premium tax credit:

Every taxpayer who received an advanced premium tax credit to help pay for their health insurance will have to complete the 2014 Premium Tax Credit form when filing their 2014 federal return. The calculated amount of the 2014 premium tax credit will then be compared to the subsidy amount they received which will result in one of the following:

• The taxpayer will receive a refundable credit if the premium tax credit is more than the subsidy amount.
• The taxpayer will have to pay an additional tax if the subsidy amount is higher than the premium tax credit. The amount of additional tax will be limited based on where the taxpayer falls on the federal poverty line. It will range from a minimum of $300 ($600 for married filing joint) to a maximum of $1,125 ($2,500 for married filing joint).

It is important to understand that a taxpayer who receives a subsidy to help pay for their health insurance premiums is required to file a 2014 federal return and complete the premium tax credit form. This is true even if they otherwise would not be required to file a federal return. If they do not complete the premium tax credit form, they will not be able to receive a subsidy in future years.

For a more detailed explanation of the Premium Tax Credit, see the How the Affordable Care Act will Affect You and Your Tax Return - Premium Tax Credit page on the CrossLink Tax website.

Also, here are other Premium Tax Credit resources available on the IRS website:

• IRS Premium Tax Credit
• IRS Questions and Answers for the Premium Tax Credit