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TOP TAX ISSUES FOR SMALL BUSINESS
What Will Affect Businesses This Year (and Beyond)
Updated January 27, 2014
Katie Powell, CPA and Yulia Sharapova-Leamy, CPAThompson Kessler Wiest & Borquist PC
Cutting Through the Complexity
• 2013 Survey by the National SmallBusiness Association:
- Most small companies spend more than40 hours a year dealing with federal taxes
- 38% spend more than 80 hours a yearon tax compliance
Small Business Health Care Tax Credit
• Small businesses can qualify for a credit basedon health insurance premiums paid if they:
- Have fewer than 25 FTE employees
- Pay an average annual wage of lessthan $50,000
- Contribute 50% or more to employeehealth insurance premiums
Small Business Health Care Tax Credit
• For tax years beginning in 2014, the credit is 50% of premiums paid(35% for small tax-exempt employers)
• Credit will apply only to participants in the Small BusinessHealth Options Program (SHOP) Marketplace
• SHOP opens to companies with up to 50employees; expected to expand in 2016
New Tax Rates on Ordinary Income and Capital Gains
• Highest individual income tax rate: 39.6%
• Qualified dividend and long-term capitalgains tax rate: 20% for highest earners
- If the new net investmentincome tax applies: 23.8%
New 3.8% Tax on Net Investment Income
• Modified adjusted gross income (MAGI):
- >$250,000 for joint filers
- >$200,000 for single filers
• Tax applies to the lesser of:
- Net investment income (NII)
- Amount of MAGI > threshold
• NII includes capital gains, interest,and dividend income frominvestment assets
• May also apply to rental androyalty income
Repair and Capitalization Regulations
• Areas affected
- Capital expenditures
- Materials and supplies
- Repairs and maintenance
- Acquisition and production costs
- Improvement costs
Repair and Capitalization Regulations
New safe harbor provisions
• Capital expenditures up to $5,000
- Applicable financial statements
- Written book capitalization policy
• Capital expenditures up to $500
• Election to follow book capitalization policy
• Materials and supplies up to $200
Repair and Capitalization Regulations
Annual election not to capitalize improvements
• Repairs, maintenance, and improvements up to lesser of:
- $10,000
- 2% of unadjusted building basis
• Gross receipts up to $10 million
• Building cost up to $1 million
Section 179 Expense and Bonus Depreciation Deduction
• Section 179 expense limit
- 2013: $500,000
- 2014: $25,000 plus inflation
• Section 179 threshold
- 2013: $2,000,000
- 2014: $200,000 plus inflation
• Bonus depreciation
- 2013: 50%
- 2014: 0%
Home Office Deduction
• New safe harbor method
- $5 per square foot
- Up to 300 square feet
• Regular and exclusive use
SMALL BUSINESS PLANNING ISSUESLooking Beyond the Current Tax Return
Planning for Retirement and Business Succession
• Variety of retirement savings options
- SEP
- SIMPLE
- 401(k)
• Succession planning starts now!
- Expected and unexpected
- Sources of financing
Choice of Entity
• Sole proprietorships
• Flow-through entities
- Partnerships
- LLCs
- S corporations
• Double taxation
• New individual tax rates
Foreign Accounts Tax Compliance
• Foreign bank account report (FBAR)
- Annual requirement
- Financial interest or signature authority
- Maximum balance of $10,000 or more
• Foreign financial asset report
- Filed in addition to FBAR
- Part of individual tax return
Foreign Accounts Tax Compliance
• Offshore voluntary disclosure initiative (OVDI)
- Previously unreported accounts
- Penalty of 27.5% of highest balance
- Amended returns for up to 8 years
State and Local Tax Concerns
• Nexus
• Filing requirements
• Apportionment issues
• Withholding requirements
• Oregon developments
Planning Opportunities
• Added complexity may open up new opportunities
• CPA and small business owner partnership
• Year-round tax planning
Copyright © 2011 American Institute of CPAs
Copyright © 2013 American Institute of CPAs
Questions
[email protected]@ThompsonKessler.com
111 SW Columbia Street, Suite 750Portland, Oregon 97201
(503) 225-1612
