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Gearing Up for Filing Season:
Business Tax Planning
Tuesday, December 10, 2013; 11 am – noon (EDST)
Tuesday, December 10, 2013; 1 pm – 2 pm (EDST)
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The following program is designed to provide accurate and
authoritative information in regard to the subject matter covered.
It is distributed and sold with the understanding that ADP and
SmartPros Ltd. are not engaged in rendering legal, tax, accounting,
investment or other expert advice. If expert assistance is required,
the services of a competent professional should be sought.
The views and conclusions expressed herein are those of the speaker
and not necessarily those of ADP and SmartPros Ltd.
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Gearing Up for Filing Season:
Individual Tax Planning
Tuesday, December 3, 2013; 11 am – noon (EDST)
Tuesday, December 3, 2013; 1 pm – 2 pm (EDST)
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EXPERT COMMENTATOR:
Barbara Weltman
• “Big Ideas for Small Business”
• www.barbaraweltman.com
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TO RECEIVE CPE CREDIT:
• This Webinar qualifies for 1 CPE credit
• To earn CPE and/or IRS Program credit, you must
enter 4 words/phrases within 24 hours of the Webinar
• At conclusion of Webcast, go to:
www.smartpros.com/adpwebinars
• Participants may also:
Download a copy of the PowerPoint (CPE keywords excluded)
Send the presenter a question (if unanswered during the event)
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Introduction
• Taking advantage of expiring tax breaks
• Factoring in new tax taxes on successful small
business owners
• Using last minute year-end planning
• Looking ahead to possible law changes
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Expiring rules
• Rules that expire at the end of 2013:
–
–
–
–
–
Research credit
100% exclusion for small business stock issued in 2013
50% bonus depreciation
Generous first-year expense (Sec. 179) deduction
15-year recovery period for qualified leasehold,
restaurant, and retail improvements
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Expiring rules
• Other rules that expire in 2013:
– Reduction in S corporation built-in gains recognition
period
– Basis adjustment to stock of S corporations making
charitable contributions of appreciated property
– Various energy-related breaks
– Various employment-related credits
– New market credit
– Enhanced deductions for certain charitable contributions
– Empowerment zone breaks
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Using current tax breaks
• Sec. 179 deduction (“first-year expensing”)
– $500,000 limit
– Dollar amount phases out for purchases over $2 million;
no deduction when purchases are $2.5 million or more
– Applies to off-the-shelf software
• Last chance to change/elect/revoke the deduction
without IRS consent
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Using current tax breaks
• Bonus depreciation:
– 50% for 2013 of the adjusted basis of qualified property
– Qualifying property: new tangible property depreciated
under MACRS with a recovery period of 20 years or less,
certain computer software, qualified leasehold
improvement property, and water utility property
– Must elect out
• Election applies per class
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Using current tax breaks
• Fiscal year taxpayers:
– Sec. 179 deduction is based on the tax year the item is
placed in service
– 50% bonus depreciation is based on the actual
acquisition and placed-on-service dates
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Using current tax breaks
• 15-year straight line cost recovery for qualified real
•
property
Qualified real property:
– Leasehold improvements property
– Restaurant property
– Retail improvement property
• Election to treat up to $250,000 of the aggregate cost
as a Sec. 179 deduction
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Using current tax breaks
• Qualified small business stock
– Stock issued by December 31, 2013, entitles the holder
to a 100% exclusion if it is held more than 5 years
– “Qualified small business stock” definition
– Can be issued:
• To investors—complete funding arrangement before the
end of the year
• To employees—compensation for services
– Employees may want to make a Sec. 83 election
• Note: Qualified SB stock sold in 2013 has a 50%
exclusion
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New tax rules for 2013
• 0.9% additional Medicare tax on earned income
(taxable compensation and net earnings from self
employment) over applicable threshold:
– $200,000 for singles
– $250,000 for joint filers
– $125,000 for married filing separately
• Individuals complete new Form 8959
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New tax rules for 2013
• 0.9% additional Medicare tax: employer obligations:
– Withholding when wages exceed $200,000 (regardless of
filing status)
• Nonqualified deferred compensation: withhold when
earned, not when paid
– No employer matching
– Comply with employee requests for additional income
tax withholding
– W-2 reporting (discussed later)
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New tax rules for 2013
• 3.8% additional Medicare tax on certain unearned
income
– Called net investment income (NII) tax
– Figured on new Form 8960
• Tax is the lesser of:
– Net investment income, or
– MAGI over the taxpayer’s threshold amount (same as
threshold amounts for 0.9% tax)
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New tax rules for 2013
• Determine whether business owner’s distributions
from a pass-through entity are treated as investment
income
– Material participation (see Code Sec. 469)
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New tax rules for 2013
• Simplified option for the home office deduction (Rev.
Proc. 2013-13):
– $5/sq. ft. up to 300 sq. ft. of space
– Must meet basic home office deduction rules
– No depreciation (year of simplified option ignored for
purposes of future depreciation when the actual method
is used)
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New tax rules for 2013
• Limited carryover for FSAs (Notice 2013-71)
– Plan can allow a carryover up to $500 (not cumulative)
– Can have either carryover or grace period
– Carryover does not impact annual contribution
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Last minute year-end planning
• Income tax strategies: deferral or acceleration
– Basic strategy for cash basis businesses: defer income
when possible
• Example: Delay year-end billing for services so that
payment is received next year
– Factor in the additional Medicare taxes if applicable
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Last minute year-end planning
• Income tax strategies: deferral or acceleration
– Basic strategy for cash basis businesses: accelerate
expenses when possible
• Pay outstanding payables
• Pay bonuses to owners
– Use qualified small business stock
– Take 0.9% additional Medicare tax into account
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Last minute year-end planning
• Income tax strategies: deferral or acceleration
– Basic strategy for cash basis businesses: accelerate
expenses when possible
• Buy/place in service equipment before year end to use
current bonus depreciation/Sec. 179 rules
• Consider vehicle purchases (especially heavy SUVs before
year end)
• Shelter profits by setting up a qualified retirement plan (e.g.,
profit-sharing plan) before year end
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Last minute year-end planning
• Dividends
– Pay dividends before the end of the year
• Note new 20% rate on high-income shareholders
– Check with S corporations that have accumulated E&P
from their pre-1987 C corporation days
• Stock redemptions (may be dividends or capital gains)
– Execute corporate resolutions
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Last minute year-end planning
• Deduction planning
– Review final regulations on repairs (especially the de
mimimis rules and safe harbors)
– Make charitable contributions
• Accrual basis C corporations: declare before year-end
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Last minute year-end planning
• Basis strategies
– Owners of pass-through entities should check basis if
losses are expected for the year
• S corporation shareholders:
– Make loans to the corporation
– Re-work loans with guarantees so that
shareholders become the borrowers (check with
lenders)
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Last minute year-end planning
• Tax credits planning
– Hire qualifying workers before year end to use the work
opportunity credit
• Make sure to file Form 8850 within 28 days of hiring
– Check eligibility for the small employer health insurance
credit
• Top credit in 2013: 35% of employer-paid premiums
• Top credit in 2014: 50% of employer-paid premiums for
coverage obtained through SHOPs
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Last minute year-end planning
• Payroll tax planning
– W-2 reporting
• Report employer-sponsored health coverage in box DD (not
taxable to employee)
– Small employers (250 or fewer forms in the prior year) still
exempt
• Report 0.9% additional Medicare tax in box 6
– Form 941
• New line for reporting the 0.9% additional Medicare tax
– FUTA taxes
• Check for credit reduction states (www.irs.gov/pub/irsdft/f940sa--dft.pdf)
– Same-sex married employees: see Notice 2013-61
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Last minute year-end planning
• Compensation planning for S corporation owneremployees
– Set 2014 salary in light of:
• $117,000 Social Security wage base
• 0.9% additional Medicare tax
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Last minute year-end planning
• Consider changes in accounting method
– Examples:
• Acceleration of certain prepaid expenses
• Deferral of income recognition for qualifying advance
payments
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Last minute year-end planning
• Get ready for NOL carrybacks
– Check businesses impacted by the November tornados
in the mid-West or other federally-declared disasters
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Last minute year-end planning
• Tax payments
– Corporations: 2013 estimated tax (4th installment) due on
December 16 (December 15 is a Sunday)
– Business owners: 2013 estimated tax (4th installment)
due on January 15, 2014
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Last minute year-end planning
• State taxes
– Businesses that sell online should watch for changes in
state definitions of nexus (“affiliate” and “click through”)
for sales taxes
• Note: Federal Marketplace Fairness Act not likely to be
passed in 2013
– Some states are moving to “economic” presence for
income/franchise taxes
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Looking ahead
• Quality Stores, Inc. to be decided by the U.S. Supreme
Court (whether certain severance benefits are exempt
from FICA).
– File protective refund claims?
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Looking ahead
• Sen. Baucus’ draft proposal for overhaul of cost
•
recovery and accounting rules
(www.finance.senate.gov/imo/media/doc/Chairma
n's%20Staff%20Discussion%20Draft%20on%20C
ost%20Recovery%20and%20Accounting%20Sum
mary.pdf)
Bipartisan budget committee report due December
13 (may include tax reform proposals)
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Looking ahead
• Sec. 179 deduction of $1 million; $2 million phase-out
• Overhaul of depreciation (change to 4 pooled asset groups);
•
•
•
•
•
•
•
43-year recovery period for realty
Change in taxation of foreign income of U.S. corporations
Extensions of some expiring provisions
Advertising costs (50% expensed; 50% amortized over 5
years)
End to LIFO and like-kind exchanges
Start-up expenses ($10,000/20-year amortization for excess)
Sec. 197 intangible: increase to 20-year amortization period
Requiring businesses to verify W-9s for independent
contractors
– Withholding for unverified contractors from gross
payments
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Conclusion
• Watch for last-minute business-related tax changes
• Keep clients informed
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TO RECEIVE CPE / IRS PROGRAM CREDIT:
• This Webinar qualifies for 1 CPE credit
• To earn CPE and/or IRS Program credit, you must
enter 4 words/phrases within 24 hours of the Webinar
• At conclusion of Webcast, go to:
www.smartpros.com/adpwebinars
• Participants may also:
– Download a copy of the PowerPoint (CPE keywords excluded)
– Send the presenter a question (if unanswered during the event)