16 Tax Issues Facing Small Business Owne

16 Tax Issues Facing Small Business Owners in 2014

Category: For Business
Tags: Tax Planning

2014 will be a challenging tax year for businesses and higher-income taxpayers. The following issues are concerns that may impact you and your company’s tax liability in the new year.

Small Business Health Insurance Credit – The tax credit to small employers (25 or fewer equivalent full-time employees) that provide an affordable health insurance plan for their employees and supplement at least half the premiums, will increase to 50% of the employer’s contribution in 2014, up from 35% in 2013. For non-profit employers, the credit will be 35% in 2014.

Net Investment Income Tax – As part of the Patient Protection & Affordable Care Act (the new health care legislation sometimes referred to as “Obamacare”), a new tax kicked in for 2013 and will continue in 2014 and beyond. It is a surtax levied on the net investment income of taxpayers in the higher-income brackets. And although it is perceived as an additional tax on higher-income taxpayers, it can affect even those who normally don’t have higher income if they have a large income from the sale of real estate, certain business assets, stocks, or other investments. This is on top of the 20% long-term capital gain tax rate now in effect for higher-income taxpayers.

Higher Tax Rates – Prior to the increase in 2013, there were six tax brackets: 10, 15, 25, 28, 33, and 35%. Beginning in 2013 and continuing for future years, a new top rate of 39.6% has been added for higher-income taxpayers.

Higher Capital Gains Rates – Beginning in 2013 and continuing for future years, the tax rate for long-term capital gains and qualified dividends has been increased to 20% (up from 15%) for taxpayers with incomes exceeding the threshold for their filing status.

Medical AGI Phase-out – Beginning in 2013 and continuing for future years, a taxpayer’s medical deductions will be reduced by 10% of their adjusted gross income, up from the previous 7.5% (but the 7.5% continues to apply to seniors through 2016).

Possibility of Lower Expensing Deductions – The Sec 179 business expensing allowance for business equipment drops from $500,000 per year to $25,000 in 2014 unless Congress extends the more liberal amount.(1)

Bonus Depreciation Expires – Beginning in 2014, the 50% bonus depreciation for tangible business assets will expire unless Congress extends it.(1) This also reduces the first-year maximum depreciation deduction for business autos and small trucks.

Individual Insurance Mandate – Beginning in 2014, the Patient Protection & Affordable Care Act will impose the new requirement that U.S. persons, with certain exceptions, have minimum essential health care insurance, or face a penalty.

Large Employer Mandatory Insurance Requirement – Originally scheduled to begin in 2014 but delayed until 2015 because the government did not have the reporting mechanisms in place, large employers, generally those with 50 or more full-time equivalent employees in the prior calendar year, that:

o Do not offer health coverage for all its full-time employees,
o Offer minimum essential coverage that is unaffordable (employee contribution being more than 9.5% of the employee’s household income), or
o Offer minimum essential coverage where the plan’s share of the total allowed cost of benefits is less than 60% (i.e., less than the bronze plan coverage),

will be required to pay a penalty if any of its full-time employees were certified to the employer as having purchased health insurance through a state or federal exchange and qualified for either tax credits or a cost-sharing subsidy.

Simplified Home Office Deduction – Effective for tax years beginning in 2013 and continuing for 2014 and beyond, taxpayers can elect a simplified deduction for the business use of the taxpayer’s home. The deduction is $5 per square foot with a maximum square footage of 300. Thus, the…

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