And this tax filing season stands to be particularly complex for businesses because of new taxes, phaseouts of existing incentives and future provisions that need to be addressed in 2014.
For example, several business incentives that ended in 2013 include bonus depreciation, enhanced Section 179 expensing, the Work Opportunity Tax Credit, energy credits and several others.
Bonus depreciation – which allowed for 50 percent depreciation during 2012 and 2013 on the purchase of new equipment with a depreciable life of 20 years or less – expired, and there is no talk of bringing it back for 2014.
Bonus depreciation, unlike Section 179, had no dollar cap on the amount a business could claim.
Section 179 depreciation, which is a means to expense capital assets at an accelerated rate on qualified property purchased up to $500,000, will revert back to $25,000 in 2014. Qualified property for Section 179 is generally defined as new or used depreciable tangible Code Section 1245 property that is purchased for use in the active conduct of a trade or business. The deduction is limited to the taxable income of the business.
Many businesses take advantage of these two incentives, especially at year-end, to reduce their net income and ultimately their tax bill. A business owner can use a combination of Section 179 and bonus depreciation to maximize his or her deductions.
The American Taxpayer Relief Act of 2012 extended through 2013 the 15-year recovery period for qualified leasehold improvements, qualified retail improvements and qualified restaurant property.
Certain restrictions were placed on the improvements, such as the improvements must be to the interior of nonresidential real property (retail property) that has been in service more than three years and open to the general public.
Restaurant property must encompass 50 percent of the building’s square footage devoted to preparation of meals and seating. If the property was placed in service prior to Jan. 1 of this year, it may qualify.
The Work Opportunity Tax Credit also expired in 2013. Businesses that hired certain groups of individuals – veterans, families receiving certain government benefits, individuals who receive supplemental Social Security income – were qualified for a credit that could be up to 40 percent of the qualified worker’s first-year wages with a maximum threshold.
Other provisions that ended with 2013 include employer wage credits for activated military reservists, enhanced deductions for charitable contributions of food inventory, and tax incentives for empowerment zones, to name a few.
Although the Affordable Care Act mandate for employer shared-responsibility payment provision has been extended until 2015, employers need to look at their workforce to determine the number of full-time equivalent employees.
Generally, any large employer must offer its full-time employees and their dependents the opportunity to enroll in health insurance under an employer-sponsored plan. Failure to do so can result in an assessed tax.
A large employer is any employer that employs an average of at least 50 full-time equivalent employees during the preceding calendar year. Part-time employees are counted to determine employer size.
Businesses will have to file additional tax forms to capture the information required by the Internal Revenue Service.
Small businesses that provide health insurance to their employees may be eligible for a tax credit for tax years 2014 and 2015. An eligible small employer, for purposes of the credit, is an employer that has no more than 25 full-time equivalent employees, whose average annual wages are less than $50,000 and that has an arrangement that requires the employer to pay a percentage of the premium cost of the qualified health plan.
These complex changes can make it difficult for a business owner to navigate the IRS tax forms.
Having a trusted adviser to consult on tax planning and preparation is critical. Every business owner should have a Certified Public Accountant on his or her team.