Business Tax Rates and Key Features for 2014
All businesses must file an annual tax return. The specific tax return you file is dependent upon
your business’ incorporation status. For example, sole proprietorships and corporations are
required to file an income tax return whereas partnerships and S corporations file an information
return. LLC’s have the option of choosing to be classified for tax purposes as either partnerships
or corporations. See our previous Tax Planning Topic of the Month for further discussion on the
different entity tax filing structures.
In this Topic of the Month, we review the business tax rates and key features for 2014. With
each new political change, rates and deductions have and are expected to change from year to
year.
2014 Tax Rates and Filings
Corporations
Under federal law, corporations are treated as separate entities. Corporations that do not elect
to be treated as an S corporation keep a separate tax status and are called C corps. C
Corporations pay the following tax rates on their income.
Percentage Rate
Income Level
10%
15%
25%
28%
33%
35%
39.6%
$8,925 and less
Between $8,925 and $36,250
Between $36,250 and $87,850
Between $87,850 and $183,250
Between $183,250 and $398,350
Between $398,350 and $400,000
Over $400,000
Personal Service Corporations
A personal service corporation is one where the business is engaged in either the field of health,
law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. A
personal service corporation loses the graduated rates that C corporations use (see chart
above). For all personal service corporations, the tax imposed is 35% of taxable income.
Entity
Personal Service Corporation
Tax Rate
35%
Cathedral recommends using the highest tax rate of 39.6% to plan
for tax implications for your business.
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S Corporations
S corporations’ income is reported on the tax return of its shareholders. See previous Topic of
the Month titled Tax Planning for more information.
Limited Liability Company
A limited liability company’s income is reported on the income tax return of the owners,
commonly referred to as members. Again, See previous Tax Planning Topic of the Month for
more information. LLC’s can elect to be taxed either as an S corporation or as a C corporation.
For planning purposes, Cathedral recommends using the S
corporation status to limit compensation portions of income.
Social Security and Medicare Taxes
FICA Taxes
All employees working in the United States are required to pay social security and Medicare
taxes. Employers deduct these taxes from each employee’s wages. Even if an employee does
not qualify for Social Security or Medicare benefits, employers are still required to deduct these
taxes from employee’s wages. These taxes are often referred to as FICA (“Federal Insurance
Contributions Act”) taxes.
Employers match their employee’s withholding amount and pay 6.2% for Social Security and
1.45% for Medicare. The entire tax amount is 12.4% for social security and 2.9% for Medicare.
The Affordable Care Act adds an additional Medicare tax. This tax applies to wages and selfemployment income over certain thresholds, generally income over $200,000. It is the
employer’s responsibility to withhold the .9% additional tax.
FICA Taxes
Income Limit
Social Security Tax
First $113,000
Medicare Tax
Unlimited
Additional Medicare Tax Generally over $200,000
Employer Employee Total
6.2%
6.2%
12.4%
1.45%
1.45%
2.9%
0.9%
0%
0.9%
Self-employed individuals pay the entire FICA tax: 12.4% for Social Security and 2.9% for
Medicare. Owners of LLC’s and Partnerships generally are treated as self-employed.
The Affordable Care Act imposes an additional Medicare tax of 0.9%.
Affordable Health Care Act’s Employer Mandate Provision Postponed to 2015.
The Affordable Health Care Act also imposes new compliance regulations, employer mandate
taxes, as well as indirect costs on small and medium size companies. However, the Obama
administration has indicated that it will delay the employer mandate provision of the new healthcare law until 2015. The delay is to allow businesses the extra year to comply with the
requirement of providing healthcare.
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The employer mandate provision requires that companies with fifty or more employees provide
insurance to its employees. In the event that the company fails to provide insurance, it will face
a fine of up to $3,000 per employee. See our Affordable Care Act of 2013 Topic of the Month for
more information.
It is important to be mindful and watch the status of when this tax
will go into effect.
Long Term Capital Gains Rate is set at 20% for 2014.
Capital Gains
As of 2013, the same tax rates now apply both to short term corporate capital gains as well as
to the corporate and individual’s ordinary income. The maximum long term capital gains rate is
set at 20%.
Capital Losses
Corporate capital losses are only deductible against the corporation’s capital gains. This differs
from Individual income taxation, where an individual can to deduct up to $3,000 of capital losses
against ordinary income on an annual basis.
Depreciation
For 2014, there are no structural changes in the depreciation rules.
A taxpayer can recover the cost or other basis of certain property through depreciation.
Depreciation is the IRS’s annual allowance for the wear and tear, deterioration, or obsolescence
of the property.
The clock for depreciation begins to run when the property is placed in service for use in a trade
or business. The timer ends when the taxpayer has fully recovered the property’s cost or other
basis or when the property is retired from service, whichever occurs first.
In order to claim the depreciation deduction for a specific property, that property must meet
certain requirements: (1) the taxpayer must own the property, (2) the property must be used for
business or in a way that produces income, (3) the property must have a life of more than one
year.
The proper depreciation method is through the Modified Accelerated Cost Recovery System
(“MACRS”). IRS Publication 946 provides additional information about MACRS along with other
information on depreciation.
Equipment Purchases
Businesses may elect to treat the cost of certain property as an expense not chargeable to a
capital account. Meaning, the cost may be deducted for a taxable year. There is however a cap
dollar amount. For the 2013 tax year, the maximum dollar amount is set at $500,000. After 2013
the dollar cap decreases to $25,000.
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To conclude this Topic of the Month, we have provided a quick breakdown of income taxes
business should be mindful of in 2014. Located on the next page, we encourage all business
owners to examine this chart as a foundation to their conversation with their tax advisor,
determining what potential tax liabilities may be in store for them in 2014.
Philip Clements is the CEO and Rebecca Tingstrom, Esq. is an Associate in the New Jersey office of
Cathedral Consulting Group, LLC. For more information, please visit Cathedral Consulting Group LLC
online at www.cathedralconsutling.com or contact us at info@cathedralconsulting.com.
*This memorandum is provided with the understanding that Cathedral Consulting Group, LLC is not
rendering legal, accounting, or other professional advice or service. Professional advice on specific
issues should be sought from an accountant, lawyer, or other professional.
**To ensure compliance with requirements imposed by the IRS in Circular 230, we inform you that any tax
advice contained in this communication (including any attachment that does not explicitly state otherwise)
is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under
the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction
or matter addressed herein.
Cathedral Consulting Group, LLC
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Self-Employed
Self-Employed
Self-Employed
Self-Employed
Self-Employed
Over $400,000
Between $8,925
and $36,250
Between $36,250
and $87,850
Between $87,850
and $113,000
Between $113,000
and $398,350
Between $398,350
and $400,000
All
Personal Service
Corporations
Self-Employed
Over $400,000
Between $8,925
and $36,250
Between $36,250
and $87,850
Between $87,850
and $113,000
Between $113,000
and $183,250
Between $183,250
and $398,350
Between $398,350
and $400,000
Corporations
Corporations
Corporations
Corporations
Corporations
Corporations
Corporations
Income
6.2%
0.0%
0.0%
0.0%
28%
28%
33%
35%
12.4%
0.0%
0.0%
28%
33%
35%
12.4%
12.4%
25%
39.6%
12.4%
6.2%
15%
35%
0.0%
6.2%
25%
39.6%
6.2%
2.9%
0.0%
0.0%
2.9%
2.9%
2.9%
1.45%
0.00%
0.0%
0.0%
0.0%
1.45%
1.45%
1.45%
Social Security Medicare Tax
Tax Rate Per
Rate Per
Employee
Employee
15%
Income Tax
Rate
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0.9%
0%
0%
0%
Additional
Medicare Tax
Rate
55.8%
36%
34%
44%
41.2%
31.2%
43.55%
40.50%
35.90%
33.90%
28.90%
35.65%
32.65%
22.65%
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Total Federal State and Local
Rate
Rates