The Good. Up until last year the home office deduction was derived by applying a time consuming formula. It required the home owner/business owner to make calculations as to the percentage of the home that the office takes up and then allocate the cost of utilities, insurance and home repair using that percentage to determine the indirect costs of the home office. Once that total was calculated one could add in direct costs associated with the home office and then have a total for home office deduction purposes.
The IRS has simplified the method you can use to calculate the home office deduction. Now the deduction is simply equal to $5.00 multiplied by the home office square footage. The maximum allowable is 300 square feet. You can take the full deduction if your income is greater than your expenses. If your expenses are greater you only get a partial deduction.
The Bad. The Work Opportunity Tax Credit (WOTC) is no longer available. This legislation allowed employers a tax credit for hiring workers in certain categories such as veterans, food stamp recipients, summer youth employees and vocational rehabilitation referrals. Many small businesses have relied on the WOTC as both a public outreach program as well as a means to afford bringing on additional workers as business needs dictate. (Update: As of May 13, 2014, the Senate has agreed to take up a bill that would extend the WOTC through 2015).
The Ugly. Have you ever bought any equipment for your business? Remember way back in 2013 when you could deduct up to $500,000.00 for qualifying assets. This year the Section 179 deduction limit has adjusted “slightly” down to $25,000.00! This is a reversion back to the 1986 tax law when the deduction was first introduced. On top of that you can no longer take an additional first-year depreciation of 50% of the adjusted basis of certain kinds of property as an expense.
Often Congress will make last minute adjustments to expired tax credit and deductions in the fourth quarter after they see how the economy reacts, but there is no guarantee that will happen so small businesses should watch closely whether Congress acts to restore some of the benefits lost this year.