The more things change…the harder it becomes to do your small business taxes. Between the Affordable Care Act coming into full effect, on-again/off-again/on-again tax credits gurgling out of Washington, and even a shakeup of the venerable TurboTax product line, this year—more than ever—small business owners need guidance and support as April 15 approaches.
We've gathered advice from industry experts on what to look for—and to look out for—this tax season. Plus, we list tools and resources to help you—both now and in tax seasons to come.
Changes in Small Business Tax Regulations
The government mostly taketh away, but sometimes the government giveth. Mike Trabold, director of compliance risk at Paychex, identified tax provisions that small business owners should pay attention to when filing paperwork for 2014 and when looking ahead to 2015. As a leading provider of payroll, human resource, insurance and benefits service for more than half a million small businesses, the team at Paychex has had their hands full keeping tabs on the changes. According to Trabold these are the most notable.
· Health Care Tax Credit for Small Employers
Part of the Affordable Care Act, this provision allows qualifying small businesses to get a tax credit for health premiums paid on behalf of employees. Employers can apply to receive a tax credit on their annual business tax return (or Form 990-T for tax-exempt businesses).
In 2014, the maximum amount of the potential credit increased to 50 percent (35 percent for tax-exempt businesses) of an employer's contributions to health coverage. Additionally, beginning in 2014, the small business tax credit is limited to two consecutive years and available only to eligible businesses that offer coverage to employees through the Small Business Health Options Program (SHOP).
· Tax Extenders
In December, President Obama signed into law the Tax Increase Prevention Act of 2014, and in doing so expanded approximately 50 tax breaks retroactively through December 31, 2014. For now, it's a short-term extension of tax breaks covering such things as bonus depreciation and accelerated expensing of certain asset purchases, but Congress may extend them yet again to cover 2015 occurrences.
· FUTA Credit Reduction
The Great Recession's high unemployment rate left many states' unemployment insurance coffers empty. The Federal government stepped in with loans to cover the shortfall, but it's time to pay the piper—and for employers in states that are overdue paying back the Fed's strings-attached largesse, employers may foot some of the bill.
Employers in debtor states will continue to have their FUTA (Federal Unemployment Tax Act) credit amount reduced as a way to pay back the outstanding debt, so employers in the impacted states should plan to pay higher FUTA taxes for tax year 2015 (due in January 2016), and may want to consider planning for the additional tax amount early in order to avoid an unexpected tax expense at the end of the year.
· Energy Investment Tax Credits
If your small business purchased an alternative-energy system such as solar panels, fuel cell, or wind generator, you may qualify for business energy tax credits. The Energy Improvement and Extension Act of 2008 extended the Business Energy Investment Tax Credit (ITC) by eight years.
You can take advantage of this credit for the 2014 filing year for any systems installed by December 31, 2014. Still want to get green for going green? Credits are available in the respective tax year for systems placed into service on or before December 31, 2016.
· New 401(k) Plan
Small businesses that started a new 401(k) plan can claim a federal tax credit for the first three years of the plan to offset plan startup costs. Eligible startup costs include those necessary to set up and administer the plan, as well as those to educate employees about the plan. A percentage of contributions made by the employer are tax deductible as well.
· Deduction for Working from Home
If you run your business out of your home, you already know that you may qualify for a home-office deduction. Last year, the IRS introduced a streamlined option that reduced many of the recordkeeping requirements for this tax credit. But you aren't locked into that one-size-fits-all deduction; if you're willing and able to maintain the paperwork substantiating all your expenses, you can still apply for a bigger deduction.
· Taxation of Online Sales
This is likely to be an issue that affects many small businesses for tax year 2015, noted Trabold. To level the playing field between brick-and-mortar retailers and online merchants (and to address state concerns about lost revenue), the U.S. Senate passed the Marketplace Fairness Act in May 2013. This would have allowed states to collect sales tax on purchases made by state residents regardless of the seller's location. The bill stalled in 2014, but because of the amount of revenue at stake, businesses should expect this legislation to be resurrected this year.
More Tax Regulation Changes for Small Business
A leading professional services firm specializing in accounting, technology, investment banking, and advisory services, Sikich LLP also keeps abreast of tax-law changes for its clients. George Malina, the company's partner-in-charge, accounting services, provided other valuable small business tax tidbits.
· Tangible Property Regulations
The new tangible property regulations go into effect for tax years beginning on or after January 1, 2014. These regulations govern whether a taxpayer is required to depreciate or take as a current deduction expenditures such as the purchase of a new desktop computer or the installation of a new VoIP phone system.
Almost every business should have put in place a fixed asset capitalization policy effective prior to the start of their fiscal year that began on or before the effective date, or otherwise risk being required to depreciate de minimis small items such as memory upgrades or inexpensive peripherals rather than taking them as a current expense.
Every taxpayer will also be required to address these regulations when they file their tax return for the first year in which these new regulations are put into place. Business owners will need to determine how they will indicate compliance with the new regulations when they file their tax return.
On one end of the scale, some taxpayers may be able to insert a simple statement as part of their tax return, while others may need to prepare and file one or more IRS Form 3115, Application for Change in Accounting Method. Incorrectly complying with these new regulations could result in the permanent loss of future tax deductions.
· Out-of-state Sales Taxes
States lose an estimated $23 billion in sales tax revenue as a result of out-of-state purchases and have responded by significantly increasing their audit activity as they look to recapture this lost revenue. It's important that businesses review their out-of-state purchases to determine if sales tax was collected and, if appropriate, self-assess and pay that tax.
Common general ledger accounts to review include fixed assets and office supplies, but business owners should then drill deeper to the vendor level to determine which invoices to review. In most cases, business owners will be able to determine which vendors don't charge sales tax and which will let them collect this data throughout the year rather than doing it along with the chore of income tax filing.