January 19, 2015
THE EVER CHANGING TAX UPDATES
By Marc Whitfield, CPA, CFST, MBA – Tax Manager at Stroemer & Company, LLC
They say the only thing certain is death and taxes. We could probably add to that increasing complications of the tax laws and last minute passage of tax extenders year after year by Congress. What started out with 11,400 words, the tax code now encompasses over 7 million words and counting. With much anticipation, Congress finally passed a tax bill near the end of December that extended a host of tax breaks retroactively that expired at the beginning of 2014. Those included a host of breaks for individuals and as well as business.
Of the over 50 provisions extended, one of the biggest benefits to business was the increase of the Section 179 expensing, which had reverted back to $25,000. The new law extended the amount your business can expense on equipment purchases up to $500,000, retroactive on purchases made in 2014. Also, an additional benefit extended was 50% bonus depreciation on purchases of new assets placed in service in 2014. The good news is business’s can use both for the same asset. For example, your business purchases a new asset for $1,000,000. It will be able to write off $850,000 of depreciation in year 1, consisting of $500,000 of Section 179, $250,000 of bonus depreciation and another $100,000 of regular depreciation. That’s a potential tax savings of close to $300,000 depending on your tax bracket. That’s a nice Christmas present.
Einstein once said the hardest thing in the world to understand is the income tax. That was even before the new regulations on tangible property kicks in regarding repairs versus capitalization of tangible assets. The new regulations, long, complex and confusing and ten years in the making, provide guidance on what is considered a repair and what needs to be capitalized. What this boils down to is that more assets will probably need to be capitalized. Also, business will need to have a capitalization policy in place, if they don’t have one in place already. Luckily, there is a de minimis safe harbor rule that allows taxpayers to expense tangible assets costing $500 or less automatically and up to $5,000 for businesses that undergo financial audits each year. Furthermore, with the new regs it’s likely nearly all taxpayers may have to adopt a new method to account for materials and supplies by filing Form 3115 with the IRS.
Another big change for businesses will be the new healthcare provisions that kick in. If your small business has less than 50 full time equivalents, you can breathe easier. You will not have a shared responsibility, and therefore, not have to worry about any penalties, at least not regarding healthcare. Employers who have over 50 or more “full time equivalents” are considered “applicable large employers” and may be charged a penalty by the IRS if they fail to offer health insurance coverage to their full time employees and their dependents. Full time employees are employees that average at least 30 hours per week or 130 hours per month. Those employees that are under 30 hours are
aggregated by month and divided by 120 to determine full time equivalents. If you have 50 or more, you must provide affordable coverage that meets minimum essential coverage to at least 70% of your full time employees. If your coverage is deemed unaffordable or does not provide minimum value you could possibly be charged a penalty if at least one of your employees receives a premium tax credit for health insurance through the health exchanges. Penalties are either $2,000 or $3,000 dollars per employee but only if an employee ends up enrolling in the government marketplace and gets a premium subsidy from the government. Obviously the rules are a bit more complex than this and your business may qualify for transitional relief in 2015 if you have fewer than 99 full time equivalents.
These are just a few of the many changes taking place in 2014 and 2105. Due to the ever changing complex tax laws, do what you do best, which is run your business and seek qualified tax professionals help to guide you through the maze of tax rules.