As the year draws to a close, it is a good time to take stock of your tax situation and identify possible opportunities to minimize your tax liability. Many of the provisions associated with the American Taxpayer Relief Act of 2012 (ATRA) became effective in 2013, which means they will have an impact on this year’s tax return.
We encourage you to contact us at your earliest convenience to discuss how these changes may affect your unique situation and develop a strategy that makes sense for your business. Among the issues you should be considering:
Health Care Reform
Despite last-minute postponements in the effective date of some provisions of the Affordable Care Act (ACA), it’s important to determine now what impact this law will have on your business. By acting now, we can identify a long-term plan that anticipates the eventual rollout of the reporting and penalty provisions of the employer mandate.
The Small Business Health Care Tax Credit can help offset the cost of coverage for many companies by providing a credit against taxes, but there will be changes beginning in 2014. The credit rises to 50% of premiums paid (35% for small tax-exempt employers), but it only applies to small businesses that participate in the Small Business Health Options Program (SHOP) Marketplace. We will be happy to answer your questions about the SHOP, as well as other provisions of the ACA.
Employers should also be aware that a number of other provisions will go into effect as originally scheduled, such as the 90-day limit on the period before a new hire can become eligible for employer-provided health coverage.
New Tax Laws in Effect
- The ATRA extended small business expensing under Section 179 through 2013, as well as the availability of first-year “bonus” depreciation, which helps lower the after-tax costs of new business property.
- The highest individual income tax rate rose to 39.6% in 2013. Taxpayers at this income level also will see tax rates on dividend income and long-term capital gains rise to 20% (up from 15% in 2012). High-income business owners who find themselves paying more in taxes under the new law should consider options for minimizing their outlays.
- There is a new tax starting with 2013 returns — the 3.8 investment income tax — and it applies to single taxpayers with adjusted gross income of $200,000 and joint filers earning $250,000. This new tax may affect the return on the sale of your investments, but proper planning may serve to minimize the impact.
- Although the alternative minimum tax (AMT) originally was aimed at high-income taxpayers, it has increasingly affected more and more middle-income taxpayers over the years. Although the AMT now is indexed for inflation, the use of certain tax breaks still could subject you to the tax.
- Flow-through entities have been very popular in recent years, but the higher tax rate and new 3.8% net investment income tax could significantly erode their tax benefits. We can advise you on the form of entity that suits your business needs and tax situation.
- If you plan to take the home office deduction, you should know that there is a new optional safe-harbor method that allows taxpayers to deduct $5 per square foot of home office space (up to 300 square feet). While this is a “simplified” method, it is not the best option for all taxpayers — we can determine the method that will give you the best results.
Other Key Considerations
- We urge our clients to seek out the greatest benefit from every possible tax-advantaged retirement option available. Talk to us about the choice that makes the most sense for you and your company.
- New businesses are allowed to deduct up to $5,000 in start-up costs on their initial return and any remaining portion in future years. Up to $5,000 in organizational costs such as filing and legal fees can also be deducted. You may be eligible to include a wide range of expenses in either of these categories, so talk to us about taking the proper deductions.
- If your business provides services, sells products or otherwise has a presence in more than one state, it may be subject to tax withholding, filing and payment requirements in many of those states. We can help you ensure that you are compliant with their laws and make use of all tax planning opportunities.
Although new and ever-changing tax laws seem to increase complexity, they also often open up new opportunities to minimize your tax bill. We can help you analyze your tax situation and determine the best steps to address your tax challenges and any other financial concerns.
We are also available after tax season to advise on strategies and planning decisions that will help you minimize taxes and meet your business and financial goals going forward. Please contact us today to schedule an appointment to begin discussing your options.
Paul C. Barrett, CPA