There are new rules with respect to the taxability of gains from sales of business interests, employer responsibilities under health care reform (the Affordable Care Act), as well as some favorable provisions with regard to the acquisition and disposition of business property that may require some revisions to your fixed asset policies.
- Purchased and Disposed Business Property
Most businesses will be affected by the IRS recently issued new rules pertaining to the acquisition, disposition, maintenance, repair, production, or improvement of tangible property. While these new rules apply to tax years beginning after 2013, businesses can adopt them for certain earlier years. Retroactive adoption of these rules could result in significant refunds to your business.
A new de minimis rule allows tangible property purchases to be expensed without question, up to a maximum of $5,000 per item. To take advantage of this rule, taxpayers must have, at a minimum, a written fixed asset policy in place at the beginning of the year that they follow for book purposes. If this is something your business does not currently have, we can help you establish such a policy. The new rules also contain several taxpayer-friendly elections that we need to discuss to see if they would be a good fit with your business.
Beginning in 2014, businesses can now claim a loss upon the disposition of a structural component of a building before previously identifying the component as an asset. An example of this includes situations where a turnkey building was acquired years ago but now has certain components that are obsolete such as elevators or electrical and heating systems. This may require modifications to your fixed asset policy as well as the filing of a change in accounting method with the IRS.
- Gain or Loss on Dispositions of Business Interests may be Subject to the Net Investment Income Tax (NIIT)
A new 3.8 percent tax on net investment income above a threshold amount of $200,000 ($250,000 if married filing jointly or $125,000 if married filing separately) took effect on January 1, 2013. Net investment income includes interest, dividends, most rental and royalty income and net gain attributable to the disposition of property other than property held in a trade or business (capital gains). This generally includes sales of interests in a partnership, S corporation or C corporation (but see QSBS discussed earlier). The NIIT needs to be considered if you expect to have such dispositions.
- Change in Tax Rate and Tax on Dividend Distributions to Business Owners
Beginning in 2013, a new 20% rate applies to dividend distributions to business owners that would otherwise be taxed at a 39.6-percent rate (i.e., the highest individual tax rate). As a result, tax rates of 0%, 15% and 20% apply to dividend income, depending on your tax bracket. Dividend distributions may also be subject to the 3.8% NIIT.
- Patient Protection and Affordable Care Act (PPACA)
The PPACA includes several provisions that may affect you as an employer as follows:
- Shared responsibility provisions – also known as the “employer mandate”
- Originally to take effect on January 1, 2014, delayed until January 1, 2015
- Under the employer mandate, a penalty is imposed on certain large employers (more than 50 employees) that do not offer adequate and affordable health insurance coverage
- A qualified small employer may be eligible for a credit for contributions to purchase health insurance for its employees
- The amount of the credit increases from 35 percent (25 percent for tax-exempt organizations) of eligible premium payments in 2013 to 50 percent (35 percent for tax-exempt organizations) in 2014
- The tax credit is subject to a reduction if you have more than 10 full-time employees or if average annual full-time employee wages exceed $25,000
- Finally, employers must report the cost of employer-sponsored group health plan coverage on employee W-2’s
The foregoing highlights just some yearend business and tax planning ideas and potential issues that are intended to provide general guidance. Specific facts and circumstances should be referred to your tax advisor.