It’s a new year and we all know what that means. New tax rules! Many of you are probably just now
gearing up to file your 2012 returns, but it’s good to keep in mind the changes that take place in 2013 that
will affect your writing business.
Standard Mileage Rate
The standard mileage rate has increased from 55.5 cents per mile for 2012 to 56.5 cents per mile for
2013. Not a big increase, but we’ll take what we can get, right?
Be sure to keep an accurate mileage log since car expenses are a common audit item. Note, too, that the
standard mileage rate is sometimes adjusted mid-year if events occur that significantly affect gasoline prices.
For instance, after Hurricane Katrina hit Louisiana, gas prices skyrocketed. The IRS allowed a higher mileage
rate for miles driven after the spike in prices.
SEP-IRA Contribution Limits
The SEP-IRA contribution annual limit has increased from $50,000 in 2012 to $51,000 for 2013. Remember,
however, contributions are limited to the lesser of this annual limit or 25 percent of net earnings from
self employment, which is defined as your gross earnings less deductible business expenses and the deductible
portion of self-employment taxes. See IRS Publication 560 at www.irs.gov for more details and a worksheet
to compute your maximum deduction.
You can set up a SEP-IRA and make contributions for a given year up to the due date of that year’s return,
including extensions. So it’s not too late to set up a plan and contribute funds for 2012. Be sure the financial
institution identifies the contributions as 2012 contributions;. If they mistakenly apply them to 2013
and you later make a large contribution for 2013, you could find yourself facing an excess contributions penalty
of 10 percent.
New Simplified Option for Home Office Deductions
While you will still have the option of computing home office deductions based on your actual expenses
under the traditional rules, starting with tax year 2013 the IRS will allow taxpayers to instead claim a standard
home office deduction of $5 per square foot, up to a maximum of $1,500 (300 square feet).
The new rule is expected to save taxpayers 1.6 million hours a year normally spent on recordkeeping and
preparation of the home office tax forms. Taxpayers using the optional standard deduction will complete a
much more simple form than the traditional home office deduction form, which is over 40 lines long.
The rules for eligibility will remain the same, meaning that a taxpayer is eligible to claim a home office deduction
only if he or she uses a home office space exclusively for a writing business.
A taxpayer may change methods from year to year and does not have to use one method consistently.
Thus, if you expect the actual expense method to yield a higher deduction in a given tax year, you may
choose to use this traditional method for computing your home office deduction even if you have used the
optional standard amount in the past. Once you make the election for a given year, however, you are bound
to your chosen method for that particular year and cannot amend your return to change methods. The election
is irrevocable. Also, if you and/or your spouse have more than one home office, you must use
TOC -> Page 14 ->