New tax regulations: Are they good news for your 2014 taxes?
Staying up-to-date with the ever-changing regulatory environment can be the difference between your business maintaining compliance or potentially facing steep IRS penalties. IRS commissioner John Koskinen has publicly admitted that the 2014 tax year will be one of the most complicated and stressful to process in the history of the IRS. Don’t let new tax regulations in 2014 complicate your IRS filing. As you prepare for income tax due date, this recap of relevant tax issues can help you be aware as you prepare for what’s ahead and monitor items that may affect your business.
Tax breaks extended
Your business may be eligible for a number of tax breaks for 2014 thanks to the Tax Increase Prevention Act, which passed only two weeks before New Year’s Day 2015 as an extension from 2013. This retroactive bill applies from Jan. 1, 2014, onward, and gives tax breaks to businesses on a number of fronts. It extended:
Section 179 expensing. Section 179 allows businesses to take a deduction for any qualifying equipment or software purchased or leased during the year. The tax-extension bill maintains the $500,000 maximum deduction for new and used equipment that was placed in service in 2014. This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Notable issue: Barring another extension, the maximum deduction in 2015 is $25,000, reduced by the amount by which the cost of the property placed in service during the tax year exceeds $200,000.
Bonus depreciation. This provision allows an additional 50 percent deduction for qualifying property. The property must be new and have been placed in service before Jan. 1, 2015. You may elect out of bonus depreciation for any class of property in 2014. Notable issue: Section 179 expensing and bonus depreciation can be used together.
Work Opportunity Tax Credit (WOTC). The WOTC may be available to your business if you hired military veterans and other qualified individuals before Jan. 1, 2015. The credit is generally 40 percent in qualified first-year wages up to $6,000. Notable issue: The credit may be as high as $24,000 depending on other qualifying factors related to the employee.
Research credit. It generally allows taxpayers a 20 percent credit for qualified research expenses or a 14 percent alternative simplified credit. Notable issue: The research tax credit may be claimed for increases in business-related qualified research expenditures and for increases in payments to universities and other qualified organizations for basic research.
New markets tax credit. The provision authorizes the allocation of an additional $3.5 billion of new markets tax credits for 2014. Notable issue: The credit encourages taxpayers to make loans to, or invest in, businesses in low-income communities.
Stay ahead of the game
Just because tax law can be complicated, it doesn't mean the countdown to tax time should leave you dizzy. Here are some ways to manage your taxes year-round:
- Think about taxes all year long. Small business owners should not treat taxes as a once-a-year event. Rather, tax planning should be a year-round activity. Waiting until the last minute makes tax preparation more complicated, and it limits your money-saving options.
- Hire a pro. A knowledgeable tax attorney or accountant can be worth the expense. Tax laws are complex, and they're difficult for many busy business owners to weed through. A professional can identify tax breaks and deductions you might otherwise miss.
- Be aware. Even with the help of a skilled professional, it is typically your job to keep up with news related to laws. Read the business papers and keep up with Congress' work on tax laws.
- Don't make assumptions. Tax planning, to some extent, is a gamble. Although historically, Congress has always passed the tax-extender bill at the last minute, there are no guarantees. It’s great to save on taxes, but it’s a good idea to avoid making decisions based solely on taxes. If you need new equipment, spend the money — any tax savings is a bonus.
For additional resources from state and federal tax credits and deductions to forms and publications or e-filing requirements, visit the California Tax Service Center.