Year End Tax Planning for 2015
The House and Senate approved the Bipartisan Budget Act of 2015 on October 30, 2015. This two year budget deal would lift statutory caps on discretionary spending for fiscal year 2016 and 2017, suspend the federal debt ceiling into March of 2017 and offset the cost of spending increases with a mix of tax and non-tax provisions. The Act is expected to be signed promptly into law by President Obama. Although the Act left out many of the tax extenders mentioned below, that expired at the end of 2014, many observers believe that these expiring provisions will be addressed with appropriations legislation slated to move through Congress prior to December 31, 2015. Below is a list of changes in the tax law for 2015 that you should be aware of as they could impact your business:
Expired After 2014
- Bonus depreciation - where a 50% depreciation deduction was allowed for qualifying property acquired and placed in service through December 31, 2014. In addition, the $8,000 increase in first year depreciation limit for qualifying vehicles subject to the 280F passenger auto depreciation limitations
- Enhanced Section 179 - expensing allowances which allowed businesses to expense $500,000 for investment in qualified property, with a phase out starting at $2,000,000, in 2014 and $25,000 with a phase out starting at $200,000, thereafter.
- Research and experimentation credit - equal to 20% of R&D expenses over the base period amount
- Improvements - Enhanced cost-recovery and straight line depreciation for qualified leasehold, restaurant, and retail improvements
- Energy Efficient Improvement - Upfront deduction for energy efficient improvements to commercial buildings of up to $1.80 per square foot for the cost of qualifying energy efficient property installed in a commercial building
- Work opportunity credit - for members of targeted groups (includes qualified veterans) who begin work through 2014
- Qualified Small Business Stock - 100% gain exclusion on sale of qualified small business stock for both regular tax and AMT purposes
- Energy Efficient New Homes - Credit for builders of energy efficient new homes that achieve a 30% ($1000 credit) or 50% ($2000 credit) reduction in heating and cooling energy consumption relative to comparable dwelling
Changed in 2015
- The maximum business contribution to a SEP investment account increased from $52,000 in 2014 to $53,000 in 2015
- Standard Mileage Rates - Beginning January 1, 2015 the standard mileage rates for the use of a car will be: 57.5 cents per mile for all business miles driven, this up from 56 cents per mile in 2014
New in 2015
- Ratably Accrue Certain Prepaid Service Contracts - new in 2015 this provision provides accrual based taxpayers with a safe harbor to treat economic performance as occurring on a ratable basis for certain 12 month service contracts that require upfront payment allowing them to recognize expenses in the prior year
- Affordable Care Act Large Employer reporting requirements - effective in 2015, employers with 50 or more full time employees including part time equivalents (with all related businesses treated as single employer) during the prior year are required to file form 1095-C, to report health insurance coverage offered to employees for the 2015 calendar year. Penalties for failure to file with IRS can be up to $250/return and failure to file with employee up to an additional $250/return.
Expired After 2014
- The election to take deduction for state and local general sales taxes instead of state and local income taxes
- Above-the-line deduction for qualified tuition and related expenses (up to $4000)
- Deduction of mortgage insurance premiums as qualified interest
Changed in 2015
- FICA Wage base for wages and self-employment income subject to the 15.3% tax increased from $117,000 in 2014 to $118,500 in 2015
- Standard Deduction - increased from $6,200 ($12,400 MFJ) in 2014 to $6300 ($12,600 MFJ) in 2015. Itemized deductions for individuals are generally reduced by 3% of AGI in excess of the threshold which increased from $254,200 in 2014 to $258,250 in 2015
- Personal exemption - amount for individuals increased from $3,950 in 2014 (with a phase out beginning at $254,200 of AGI) to $4,000 (with a phase out beginning at $258,250 of AGI) in 2015
- The maximum contribution to an Health Savings Account increased from $3,300 self only and $6,550 family coverage in 2014 to $3,350 and $6,650 , respectively in 2015
- The maximum IRA contribution remained at $5,500 for 2014 and 2015, while the maximum 401K contribution increased from $17,500 in 2014 to $18,000.
Unchanged for 2015
- The Annual exclusion for gifts remained unchanged at $14,000 from 2014 to 2015
- Student loan interest deduction remains at $2500 for both 2014 and 2015 , phase out begins at $65,000 for single taxpayer, $130,000 MFJ
- Dependent care credit of up to $2,100 for two of more dependents
- The child tax credit for qualified children under the age of 17 remained at $1000
- Additional .9% Medicare Surtax on earned income of higher income Individuals, If w-2 wages exceed $250,000 married filing jointly, $125,000 married filing separately, $200,000 for other individuals
- Additional 3.8% Medicare Surtax on net Investment Income of higher Income individuals, It is 3.8% of the lesser of 1)net investment income or 2) Modified AGI exceeding $250,000 married filing jointly, $125,000 married filing separately, $200,000 for other individuals
- Capital Gains rates will generally remain at 0%, 15%, 20% depending on individual income tax bracket
- Qualified Dividends will be taxed at capital gains rates of 0%, 15%, 20% depending on individual income tax brackets
In addition to being aware of the tax law changes listed above, business owners should consider purchasing in 2015, those Items needed for the New Year - This will allow you to realize the tax savings from the purchase in 2015 versus 12 months from now. These deductions can really add up, especially if you take advantage of the IRS Section 179 mentioned above. Provided the listed property is used 50% or more of the time for business. This produces an immediate write-off of capital assets. Some typical assets that qualify for Section 179 include: manufacturing and R&D equipment, some vehicles, cell phones, computers, off-the shelf software. For example, if you buy a $1,000 computer and use it for your business, you could deduct the full cost from your taxes. If you were in the 28% federal income tax bracket, this would save you $280 in income tax. At a 12% cost of capital, this translates into a 4% discount on your computer purchase!
Many business owners fail to take advantage of all the tax deductions available to their business. Here are a few of the more commonly overlooked tax deductions you should be aware of:
*Business travel expense
*Accounting fees for tax preparation services
*Bank service charges
*Bad debt expense
*Business related books, magazines, seminars, association dues
*50% of self-employment tax
*Appreciation on property donated to charity
*Trade or business tools with life of one year or less
As Congress continues to evaluate the Bipartisan Budget Act of 2015, and the appropriations legislation slated to move through Congress prior to December 31, 2015, we recommend that business owners be prepared for these possible changes in the tax law. It is in your best interest to have your year-end tax plans in place for a variety of tax scenarios, so that you can quickly execute them before year-end.
Contact us if you have questions concerning the 2015 federal tax law changes or any other tax compliance or planning issues.
Source: Tax Policy Center, Internal Revenue Service
In today's challenging market, business owners need to be taking advantage of every opportunity they can find to improve profits and generate cash flow. This includes taking advantage of all the business tax credits that the state government has to offer. These tax credits, unlike tax deductions, give you a dollar for dollar reduction in your tax liability. These Arizona credits can really make a difference in your bottom line! If you have any questions regarding these changes or any other tax planning questions please give us a call!
Paul J. Beckert MBA, CPA
Pinnacle Business Solutions
Note: The information contained in this material represents a general overview of tax regulations and should not be relied upon without an independent, professional analysis of how any of these provisions apply to a specific situation.
Key Points of Interest
Affordable Care Act Large Employer reporting requires employers with 50 or more employers to file form 1095-C during the prior year or face penalities up to $250 per employee.
Standard Mileage Rate have changed from 56 cents per mile up to 57.5 cents per mile.
Maximum 401K contribution increased to $18,000 per year.
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