What’s New for Businesses This Tax Year?

Here’s some new information for business taxpayers in the 2015 tax year:

W-2 Reporting of Employer Health Costs

The Affordable Care Act (ACA) requires certain employers to report the cost of coverage under employer-sponsored group health plans. This reporting is done on W-2 forms. Reporting the cost of health care coverage on Form W-2 doesn’t mean it is taxable. The reporting is for informational purposes only to help employees understand the cost of their coverage.

Currently, this reporting is optional for employers that submit fewer than 250 W-2 forms. But it’s mandatory for employers that submit 250 or more W-2 forms. Compliance requires employers to supply the appropriate reporting codes, which flow to the required W-2 reporting boxes. To further complicate matters, certain types of coverage (such as major medical) currently must be reported, while other types are optional or don’t need to be reported.

W-2 forms must be distributed to employees by February 1, 2016. But gathering the requisite information will be time consuming for most companies. Fortunately, your tax and accounting advisers can assist with W-2 reporting of employer health costs. Be sure to contact them as soon as possible if you need help.

Extenders

Year-end tax planning for 2015 is particularly challenging because Congress has yet to act on a host of tax breaks that expired at the end of 2014. It’s uncertain at this time whether the “extender” provisions will be extended by Congress on a permanent or temporary basis (and whether any such extension would be made retroactive to January 1, 2015). For businesses, these tax breaks include:

1. 50% bonus first-year depreciation for most new machinery, equipment and software,

2. An expanded annual expensing limitation under Section 179 (up to $500,000 for 2014),

3. The research tax credit, and

4. The 15-year write-off for qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

Discuss the status of these extenders with your tax adviser before year end.

 

 

 

© Copyright 2015. Thompson Reuters.  All rights reserved. Brought to you by: Gordon Advisors, P.C.

2015 Year-End Tax Planning Tips for Small Businesses

Virtually all small business owners are frustrated with our current tax system. In fact, five out of today’s Top 10 small business concerns relate to state and federal tax issues, according to the Small Business Problems and Priorities survey released by the National Federation of Independent Business (NFIB), a small business advocacy group. Small businesses are most frustrated by the complexity of the tax code and the disparity between effective tax rates of small vs. large businesses. Tax reform will undoubtedly be a hot button during the 2016 presidential race.

Meanwhile, business owners who engage in proactive planning can take some of the “bite” out of their taxes. Here are some simple strategies for you to consider during the fourth quarter of 2015. These maneuvers require action before year end, so don’t delay.

Defer Income and Accelerate Deductible Expenses (or Vice Versa)

The majority of small businesses are organized as so-called “pass-through entities” that don’t pay corporate-level income tax. If your business is a sole proprietorship, partnership, limited liability company or S corporation, your share of the business’s income is reported on your Form 1040 and taxed at your personal rate.

The individual federal income tax rates are scheduled to be the same for 2016 as they are for 2015. Therefore, deferring revenue into 2016 while accelerating deductible expenses into 2015 makes sense if you expect to be in the same or a lower tax bracket next year. In that case, this strategy will, at a minimum, postpone part of your tax bill from 2015 until 2016.

On the other hand, if your pass-through business is thriving, and you expect to be in a higher tax bracket in 2016 (say, 35% vs. 28%), take the opposite approach. If possible, accelerate revenue into 2015 and postpone deductible expenses until 2016. That way, more income will be taxed at this year’s lower effective marginal tax rate instead of next year’s higher rate.

If your business is a C corporation, you need to consider the 2016 corporate income tax rates. They are also scheduled to be the same as in 2015. So if you expect your corporation to be in the same or a lower bracket in 2016, postpone revenue into next year while accelerating deductible expenses into this year. If you expect to be in a higher tax bracket in 2016, try the opposite approach by accelerating taxable income into 2015 and deferring deductible expenses to 2016.

How to Juggle Income and Expenses (for Cash-Basis Entities)

Juggling year-end revenue and expenses is fairly simple if your small business uses the cash method of accounting for tax purposes. The cash method gives you flexibility to manage your 2015 and 2016 taxable income to minimize taxes over a two-year period. Let’s look at some specific cash method strategies to consider if you expect business income to be taxed at the same or lower rate next year.

First, before year end, use credit cards to pay recurring expenses that you would otherwise pay early next year. You can deduct the charges in 2015 even though the credit card bills won’t be paid until next year. This favorable treatment doesn’t apply to revolving charge accounts issued by retailers, however: You can’t generally deduct business expenses charged to your retail store account until you pay the bill.

Another trick is to pay expenses with checks and mail them a few days before year end. The tax rules say cash-basis entities can deduct the expenses in the year checks are mailed, even though they won’t be cashed or deposited until early next year. For big-ticket expenses, send checks via registered or certified mail to prove they were mailed in 2015.

The tax code also allows you to prepay some expenses for next year, as long as the economic benefit from the prepayment doesn’t extend beyond the earlier of:

1. 12 months after the first date on which your business realizes the benefit, or

2. The end of 2016 (the tax year following the year in which the payment is made).

For example, you can claim 2015 deductions for prepaying the first three months of next year’s office rent or prepaying the premium for property insurance coverage for the first half of next year.

On the revenue side, the general rule is that cash-basis taxpayers don’t have to report revenue until the year they receive cash or checks in hand or through the mail. To take advantage of this rule, put off sending out some invoices for work completed in late December so that you won’t get paid until early next year. (Of course, you should never do this if it increases the risk of not collecting the money.)

If you expect to pay a significantly higher tax rate on next year’s business income, try the reverse of these strategies to raise this year’s taxable income and lower next year’s. For example, a cash-basis taxpayer who expects to be in a higher tax bracket in 2016 might ship before year end (and invoice) products scheduled for delivery in early January in the hope that customers will pay by December 31 and hold off on sending checks to vendors until after January 1.

Take Advantage of NOLs

These business tax planning strategies also can be used to create (or increase) a 2015 net operating loss (NOL). This occurs when a business’s expenses exceed its income. You can then choose to carry a 2015 NOL back for up to two years in order to recover taxes paid in earlier years, which may be a welcome boost to your cash flow. Or you can choose to carry the NOL forward for up to 20 years, if you think your business tax rates will go up and the NOL deduction could save you more taxes in the future.

Meet with Your Tax Adviser

These strategies only scratch the surface of proactive tax planning moves. Business owners who assess matters before year end have many more tax-planning strategies at their disposal than those who wait until after the start of the tax filing season.

© Copyright 2015. Thompson Reuters.  All rights reserved. Brought to you by: Gordon Advisors, P.C.

Deducting Tickets to Sporting Events

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by Clarissa M. McCoy, Gordon Advisors, P.C., 248 952 0200

Baseball is in it’s post season, college and pro football season is grinding away and pro basketball and hockey seasons are just starting!  There are a lot of opportunities for companies to take clients, and prospects to many of these games and often companies wonder if they can deduct these sporting event tickets as a business expense, and if so, how to do it correctly.

If you want to deduct as a business expense, the company must meet several conditions.  First, the sporting event must serve a purpose where the parties are there to conduct business.  That means at the sporting event, the parties must engage in a business meeting, negotiation, discussion or transaction.  Also an employee, or representative from the company who provided the tickets must be present.  If they are not, than the tickets are considered a gift.  Additionally, it is recommended that for the business purpose of the sporting event, a private suite is ideal.  Substantial distractions can’t take away from business purposes.

There are many facets when it comes to entertainment, and gift deductions that really depend on the specific situation.  Please call us if you have any questions or specific questions!

Gordon Advisors, P.C. 248 952 0200

Understanding Your Fiduciary Responsibilities Under A Group Health Plan

_MHP0267  by Jill S. Knop, CPA, Gordon Advisors, P.C.

With the October 15th deadline approaching, which is the extended due date for filing of Form 5500, it is a good time to go over the filing requirement of that form.

 

Health and welfare plans, which include health insurance, life insurance, long and short term disability insurance may have a filing requirement with the Department of Labor.

Below is an excerpt from the DOL’s publication entitled Understanding Your Fiduciary Responsibilities Under a Group Health Plan:

Plan administrators generally are required to file a Form 5500 Annual Return/Report with the Federal Government.  The Form 5500 reports information about the plan, its finances, and its operation.  This information is used by the U.S. Department of Labor, the Internal Revenue Service (IRS), other government agencies, organizations, and the public.  Participants and beneficiaries can receive a copy of the Form 5500 upon request from the plan.  Depending on the number of participants covered and plan design, there my be exemptions from the full filing requirements.  A group health plan with fewer than 100 participants that is either fully insured or self-funded (or a combination of both) does not need to file an annual report.  Plans will 100 or more participants that are fully insured or self- funded (or a combination) can file a limited report.  

If you have questions about your filing requirements, please give Certified Public Accountant, Jill S. Knop a call at 248 952 0200.

15 Fun Tax Facts!

Happy Tax Day to all!  And to celebrate the 15th of April, we put together 15 “Fun” Tax Facts for you all to enjoy!

1. The word “tax” is from the Latin word taxo, meaning “I estimate” – which is exactly NOT what the IRS or we want!

2. Excise taxes are also called “sin taxes”.  They are taxes on alcohol, tobacco and gambling.

3. Over 1 million accountants are hired every year to file taxes.  Accountants have some SERIOUS job security.

4. There are 1120+ current active U.S. Federal tax forms.  No wonder accountants have such great job security!

5. Since Jimmy Carter, every president has released their tax returns.

6. There are more than 7 million words in the tax code.  This is more than the Gettysburg Address, Declaration of Independence and the Holy Bible combined.

7. The 1040EZ has 33 pages of instructions.  And that’s supposed to be EZ?!?!

8. Genius, Albert Einstein once exclaimed, “The hardest thing in the world to understand is the income tax.”

9. In 1787 U.S. citizens could only vote if they were taxpayers.

10. Aruba has the highest income tax in the world up to 58.95%! But at least you are on the beach…

11. Exxon Mobil is the top American company paying the most taxes.

12. The first income tax in the United States started during the Civil War in 1862.

13. Almost 90% of all tax returns are e-filed.  Remember the good old days of long lines at the Post Office…

14. In an attempt to stop global warming, places like Ireland and Denmark have started taxing cow flatulence – The tax in Denmark is $118 per cow to every cattle owner. MOO!

15. The IRS has more people working for it than the FBI.  Yet, e- filing is always delayed, tax notices are 2 years behind and amended returns still can’t be electronically filed.

References:

IRS.gov

For Good and Evil: The Impact of Taxes on the Course of Civilization. Charles Adams.

“Tax Rates:  Does the U.S. Have the Highest in the World?”  Stacy Curtin. The Daily Ticker 2013.

How Taxation Works. Laura LaBella. 2011.

“Companies Paying the Most in Income Taxes.” Douglas McIntyre. USA Today 2013

“Tax Facts That Will Make Your Head Explode.” Joe Weisenthal. Business Insider 2013.