Preparing Your Tax Return
By John Kellogg
Tax time is upon us and your business tax preparer, most likely a certified public accountant (CPA), is busy working on business and individual tax returns. You have probably visited with your preparer about your taxes and conducted planning meetings throughout the year. As many items are the same from year to year, your CPA needs your financial statements so they can get your return filed by March 16, 2015, or extendable to September 15, 2015. Below are some items to consider.
Each year some items are indexed for inflation and adjusted annually. Some of the more common limits for businesses to be aware of are:
- For 401(k) deferrals, you are allowed to withhold $18,000 in 2015, up from $17,500 in 2014. You can also withhold catch-up contributions of $6,000 in 2015, up from $5,500 from 2014 for those over 50 years of age.
- Standard mileage rate for business miles is $.56 for 2014. The rate for 2015 is set at $.575 per business mile.
- Per diem rates for overnight travel after 9/30/14 is either $259 or $172 depending on high cost areas or not.
Effective January 1, 2014, businesses can choose to apply retroactively to 2012 and 2013 to determine whether they can deduct costs as repairs and maintenance, or capitalize costs and depreciate them over a period of years. These regulations provide favorable options. They expand the de minimis safe harbor that cost $5,000 or less per item or invoice, and are deductible in accordance with the company’s financial statements for which a written policy is in place. Otherwise, the limit is $500. A statement must be included in the taxpayer’s return for the year elected that specifies a dollar amount for financial statement treatment.
The Tax Increase Prevention Act was signed by the President on December 16, 2014. That act provided an extension of tax breaks and incentives that were in existence prior to 2014.
Some say many of the tax breaks cannot possibly be effective in encouraging businesses to do anything because they are almost entirely retroactive. The tax breaks actually expired at the end of 2013 and this bill extends them through 2014.
These tax provisions are supposedly justified as incentives for companies to do things Congress thinks are desirable, like investing in equipment or research, but that justification makes no sense when tax breaks are provided to businesses for things they have done in the past.
As business owners and managers, you would like to have the benefit of the tax breaks and think they should be permanent. The following provisions are extenders that primarily deal with business investment in equipment.
Section 179 has allowed businesses to expense up to $500,000 with a $2,000,000 phase out in capital investment rather than depreciating them over 5 to 15 years. Without the bill’s approval, the limit would have been $25,000, with a $200,000 phase out. Also included are:
- Eligibility to immediately expense off-the-shelf computer software
- Eligibility of restaurant property and qualified retail improvement property under 15 year MACRS depreciation
Bonus Depreciation, or 50 percent expensing, allows businesses to deduct 50 percent of their cost in new equipment placed in service in 2014. You can elect out of bonus depreciation and spread those deductions over future years that may help match loan payment with tax benefits.
Research and development tax credit
This tax credit may be claimed for increases in business-related qualified research expenditures over average expenditures made in the four preceding years.
Depreciation for Sport Utility Vehicles (SUVs)
If you’re interested to know how your business can get a $46,000 deduction on a $60,000 investment for a 100% business owned and utilized SUV, call your CPA.
Employees and payroll
Don’t forget about the Affordable Care Act, especially if you have more the 50 employees. There are many phase-in dates. However, employers will have phase in requirements from 2014 to 2016.
Failure to file 1099s for subcontractors and other non-employees can lead to substantial penalties. If the independent subcontractor has not supplied an EIN, backup withholding should be implemented.
The wage base for social security is $118,800 for 2015.
John Kellogg, CPA, is a partner at Kellogg and Kellogg, P.C. located in Fort Worth, TX.