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.

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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.

Job Hunting Expenses

Many people change their job in the summer. If you look for a new job in the same line of work, you may be able to deduct some of your job hunting costs.

Here are some key tax facts you should know about if you search for a new job:

  • Same Occupation.  Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
  • Résumé Costs.  You can deduct the cost of preparing and mailing your résumé.
  • Travel Expenses.  If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
  • First Job.  You can’t deduct job search expenses if you’re looking for a job for the first time.
  • Work-Search Break.  You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
  • Reimbursed Costs.  Reimbursed expenses are not deductible.
  • Schedule A.  You usually deduct your job search expenses on Schedule A, Itemized Deductions. You’ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.
  • Premium Tax Credit.  If you receive advance payment of the premium tax credit in 2014 it is important that you report changes in circumstances, such a s changes in your income or family size, to your Health Insurance Marketplace. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

Deadline Coming Up to Report Foreign Account Holdings

The deadline is approaching for certain taxpayers to report accounts they hold in foreign banks and other financial institutions. You also may be required to report foreign accounts over which you have signature authority, such as an account that you maintain on behalf of a relative or employer — or if you have power of attorney over an elderly parent’s foreign account, even if you never exercise that authority.

They have a direct or indirect financial interest in — or signature authority over — one or more accounts in a foreign country. This includes bank accounts, brokerage accounts, mutual funds, trusts or other types of foreign financial accounts; andBy June 30, 2014, citizens and residents of the United States, as well as domestic partnerships, corporations, estates and trusts, must generally file a Report of Foreign Bank and Financial Accounts (FBAR) form electronically with FinCEN if:

  1. The total value of the foreign accounts exceeds $10,000 at any time during the calendar year.

Taxpayers also may be subject to FBAR compliance if they file an information return related to: certain foreign corporations (Form 5471); foreign partnerships (Form 8865); foreign disregarded entities (Form 8858); or transactions with foreign trusts and receipt of certain foreign gifts (Form 3520).

Some individuals are exempt.

Exceptions to the Reporting Requirement

There are FBAR filing exceptions for the following United States persons or foreign financial accounts:

  • Certain foreign financial accounts jointly owned by spouses;
  • United States persons included in a consolidated FBAR;
  • Correspondent/nostro accounts;
  • Foreign financial accounts owned by a governmental entity;
  • Foreign financial accounts owned by an international financial institution;
  • IRA owners and beneficiaries;
  • Participants in and beneficiaries of tax-qualified retirement plans; and
  • Certain individuals with signature authority over — but no financial interest in — a foreign financial account.

To determine eligibility for an exception, consult with your tax adviser.

Increased Scrutiny, Stiffer Penalties for Noncompliance

Take the FBAR requirement seriously. Several legislative changes, as well as a clarification of the IRS’s interpretation of the “willful standard,” have led to increased enforcement and stiffer penalties for noncompliance of foreign account reporting requirements.

The IRS states that the form “is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.”

Failing to file an FBAR can result in the following penalties:

  • A civil penalty of as much as $10,000 if the failure was not willful. This penalty may be waived if income from the account was properly reported on the income tax return and there was reasonable cause for not reporting it.
  • A civil penalty equal to the greater of 50 percent of the account or $100,000, if the failure to report was willful.
  • Criminal penalties and time in prison.

Consult with your tax adviser if you have an interest in — or authority over — a foreign account. Your tax adviser can ensure you meet the FBAR reporting requirements and remain in compliance with the law.

 

© Copyright 2014. Thompson Reuters.  All rights reserved.
Brought to you by: Gordon Advisors, P.C.

What Qualifies as a Medical Deduction?

In 2014 there is a higher itemized medical deduction threshold, raising to 10 percent of your adjusted gross income (AGI) from 7.5 percent in 2013.  Once you hit that threshold, there are many medical and dental expenses that do qualify for the deduction.  You can deduct costs related to diagnosis, treatment and prevention of disease.  Long term care insurance qualifies as well as the cost of your prescriptions.

Here are some other examples of costs you can deduct:

– Auto costs of outfitting a car with special controls needed by a handicapped or disabled person

– Acupuncture or chiropractor fees

– Prescription eye wear, including contact lenses, eye glasses, cleaning drops and wetting drops

– Hearing Aids

– Childbirth Preparation Classes for the mother

– Home improvements that are for medical purposes and do not add to the value of your home

– Removing lead-based paint from a surface in poor repair that is within the reach of a child

– Meals while in a hospital or similar facility

– Smoking Cessation programs

– Weight loss programs for specific disease or condition such as obesity (does not include cost of food)

 

If you have specific questions about your situation please give us a call at 248 952 0200 and speak to one of our tax professionals.