3 Year-End Tax Tips for Small Businesses

As a business owner, you may already know the benefits of Code Sec. 179 expensing and bonus depreciation, which allows you to deduct the cost of certain types of property on your income tax return as an expense. Uncertainty over the ultimate fate of enhanced Code Sec. 179 expensing and bonus depreciation impacts 2014 year-end planning, particularly as business owners contemplate purchases of equipment and supplies.

For tax years beginning in 2012 and 2013, the Sec. 179 dollar limitation was $500,000, and the investment limitation was $2 million (both indexed for inflation). These and other enhanced amounts expired after 2013; Congress will likely extend them, though exactly when in the last weeks of this midterm election year is uncertain.

Bonus depreciation also generally expired under current law. This applied to qualified property acquired after Dec. 31, 2007, and placed in service before Jan. 1, 2014 (before Jan. 1, 2015, for certain property). This depreciation could be extended for two years (with retroactive application for 2014) and, if extended, most likely at a 50 percent depreciation allowance.

Using expired breaks

The research tax credit, credit for employer-provided child care, and other tax breaks expire on Dec. 31, 2014. As with Sec. 179, taxpayers may not know the fate of these incentives until late 2014 or early 2015.

Other business-tax breaks expired after 2013, including: the Work Opportunity Tax Credit; the employer wage credit for activated military reservists; 15-year straight line recoveries for qualified leasehold improvements, restaurant property or retail improvements; and the recognition period for S corporation built-in gains, among others specific to industries, energy-efficiency and ethnic workforces.

Affordable Care Act requirements

Few laws have affected tax planning in the way the Affordable Care Act (the ACA, aka Obamacare) has.

Businesses with fewer than 50 “full-time equivalent (FTE)” employees are exempt from the ACA employer mandate. Larger businesses do fall under the mandate (meaning they must offer health insurance to employees) and other requirements, but midsize employers are exempt from the employer mandate for 2015. Employers qualify as “midsize” if they have an average of at least 50 to 100 FTE employees, but they must also satisfy other requirements to qualify for this transition relief. Under current rules, transition relief is only available for 2015, but Congress could extend it.

Plan for how other types of workers may affect your company’s liability for the mandate. Remember to count seasonal and student workers, on-call employees, and others to calculate your number of full-time employees.

Larger businesses also face new ACA reporting requirements; these employers must tell the Internal Revenue Service if they offer health insurance to employees, among other criteria. (Small employers exempt from the employer mandate are also exempt from this reporting.)

If you own a small business, don’t overlook a tax credit to help offset costs of providing health insurance to your employees. To qualify, your business must have fewer than 25 FTE employees for the tax year; average annual wages of employees for the year must be less than $50,000 per FTE; and you must pay the premiums under a qualifying arrangement. A pro-rated reduced credit is also available.