Presentation on theme: "Tax Considerations for the Business Owner November 8, 2013 Stephen P. Trenholm, CPA, MST Gallagher, Flynn & Company, LLP Certified Public Accountants FAMILY."— Presentation transcript:
Tax Considerations for the Business Owner November 8, 2013 Stephen P. Trenholm, CPA, MST Gallagher, Flynn & Company, LLP Certified Public Accountants FAMILY BUSINESS INITIATIVE
Expiring Key Federal Business Tax Provisions Absent any extenders legislation, the following Key Federal Business Tax Provisions are set to expire on December 31, 2013: Section 179 Expensing of $500,000 (reverts back to $25,000) Bonus Depreciation 15 Year Life for Qualified Leasehold/Retail Improvements/Restaurant Property Research Tax Credit Work Opportunity Tax Credit New Markets Tax Credit And for anyone selling the stock in your business that qualifies for special Section 1202 Small Business Stock, the exclusion of the gain reverts back to 50% from 100%.
The Healthcare Dilemma Beginning in 2014, all small employers will be required to obtain their group health coverage from the Exchange Beginning October 2013, all individual coverage must be purchased through the Exchange The dilemma now for many small employers is whether or not it is better overall to offer or not offer health coverage for employees. Key Considerations: Do you qualify for the credit for premiums paid on behalf of your employees? Is it more affordable for your employees to get their own coverage because of available subsidies (not available to the individual if their or spouses employer offers coverage to employees)
Premium Credit The current rate of credit is 35%. For years beginning after December 31, 2013, the credit increases to 50%. The credit is limited to the lessor of the actual premiums paid or the average premium for the small group market in the employers rating area. The credit has two phase outs: Full Time Equivalent (FTE)Employees exceeds 10 Average annual FTE wages exceeds $25,000 So, if an employer has 25 FTEs with average FTE wages of $50,000, the credit will be completely phased out. For determining the amount of the credit, FTEs do not include self employed individuals including partners and sole proprietors, 20% shareholders of an S Corporation and 5% owners of the employer and certain relatives of those owners. The second phase which begins in 2014, insurance must be purchased for the employees through a state exchange, and can only take the credit for two years
Premium Credit Calculation Example Example 1: An eligible small employer has 9 Full time equivalent (FTE) employees with average annual wages of $23,000. The employer pays $72,000 in premiums for the employees (not including 2% owners, family etc.) which is not in excess of the total average premium for the small group market in the rating area. The credit is 50% times the premiums of $72,000 or $36,000. Example 2: An eligible small employer has 12 FTEs with average annual FTE wages of $30,000. The employer pays $96,000 in premiums for the employees (not including 2% owners, family etc.) which is not in excess of the total average premium for the small group market in the rating area. The credit reduction for FTEs in excess of 10 is (2/15*($96,000*.50) or $6,400 reduction. The credit reduction for wages in excess of $25,000 is ($96,000*.5)*($5,000/$25,000) or $9,600 for a total credit reduction of $16,000. The credit would be $96,000*.50)=$48,000 less the reduction of $16,000 for a net credit of $32,000.
3.8% tax on net investment income income such as: Interest Dividends Rents Royalties Capital gains Applies to taxpayers with Modified Adjusted Gross Income over: $250,000 if Married Filing Jointly/Head of Household $200,000 if Filing Single $125,000 if Married Filing Separately The tax is calculated on the lesser of Net Investment Income or the excess of Modified Adjusted Gross Income over the threshold..9% tax on wages in excess of $250,000 if married filing jointly, $200,000 if filing single, $125,000 if married filing separately Medicare Surtax Issues
Repair and Maintenance Regulations Key Points: De Minimis Rule Change: The final regulations eliminate the ceiling in the de minimis rule in the 2011 temporary regulations and allow amounts properly expensed under a taxpayers financial accounting policies be deductible for tax purposes. They also provide rules allowing taxpayers without Applicable Financial Statements to take advantage of this rule. Routine Maintenance Safe Harbor Rule: The regulations extend the safe harbor to routine maintenance to buildings but require 10 years as the period of time which a taxpayer must reasonably expect to perform the relevant activities more than once. Relief for Small Businesses: The final regulations permit a qualifying small taxpayer to elect to not apply the improvement rules to an eligible building property if the total amount paid during the taxable year for repairs, maintenance, improvements and similar activities performed on the eligible building does not exceed the lesser of $10,000 or 2 percent of the unadjusted basis of the building. Eligible building property includes a building unit of property that is owned or leased by the qualifying taxpayer, provided the unadjusted basis of the building unit of property is $1,000,000 or less.
Changes to Definitions of Betterments and Restorations: In addition, the final regulations change several of the criteria for defining betterments and restorations to tangible property. Materials and Supplies: Among several changes to this section, they raise the threshold to $200 for property that is exempt from capitalization. Dispositions: The proposed regulations for dispositions change the rules for partial dispositions of assets. These proposed regulations also require making a qualifying disposition election for certain situations when assets are held in a general asset account.proposed regulations for dispositions Revenue procedures outlining the administrative process for making the changes are expected to be issued in the coming months. Prior guidance indicates that most of these changes will be considered automatic changes of accounting methods. Repair and Maintenance Regulations continued
Vermont Sales and Use Tax Cloud Computing: (Excerpted from the Fact Sheet Available from Vermont Department of Tax) DEPARTMENT OF TAXES The Sales and Use Tax Treatment of Cloud Computing The legislative moratorium on collection of sales tax on prewritten software accessed remotely has not been extended and expires on June 30, 2013. Purchases before July 1, 2013, are not taxable; liability for the tax will be incurred starting July 1. The Department of Taxes has withdrawn Technical Bulletin 54 and intends to publish regulations to guide taxation in this area, which will afford a process for resolving possible gray areas in the application of the tax. In the meantime, this information sheet provides basic guidelines.
Prewritten Software: Vermont has defined tangible personal property to include prewritten software. It is taxable whether it is bought or leased for the customers use on a disk, as a download, or accessed on a remote server. A transaction that solely involves custom software, a personal service, or professional service is not taxable. Vermont Transaction? Vermont sales tax is destination-based, meaning that the Vermont sales tax is due when a taxable product is sold to a customer in Vermont. For Vermont vendors, that means that they must collect the Vermont sales tax when selling products to customers in Vermont, but not in other states. For Vermont customers, that means that they must remit the Vermont use tax for a product they will use in Vermont that was not taxed at point of sale. Is it Prewritten or Custom? Essentially, software is prewritten if it is not designed to the specifications of a specific purchaser. Is it Software or a Service? If the vendor has made the same or similar product available on a disk or for download, it remains software subject to sales tax if offered for remote access with essentially the same functionality. (The mere addition of help desk functionality likely would not change the classification from software). For products that are only available by remote access, further factors must be considered to determine if they are prewritten software subject to sales tax. Vermont Sales and Use Tax continued Cloud Computing Continued
Estate Tax Considerations Federal: Exemption for 2013 is $5.25 million (indexed for inflation) Allows portability, i.e. any unused exemption on the first spouse to die estate can carry over to the second spouse to die. Allows for a QTIP (Qualified Terminable Interest Property) election to pass property to a surviving spouse for their lifetime, and then designate its disposition. It is includible in the estate of the surviving spouse upon their death but passes from the estate of the first to die without tax under the unlimited marital deduction. The $5.25 million exemption is reduced for lifetime gifts above the annual exclusion (for 2014 $14,000 per year per donee). Vermont: Exemption is $2.75 million No portability No QTIP Currently no gift tax