Though it still may be barbecue and beach season, the end of 2014 will be here before you know it. For consumers, this means holiday shopping and New Year's resolutions. But for business owners, it also means getting financial ducks in a row in preparation for the upcoming tax season.
There are many new and pending changes for the upcoming tax season, and some of them will be particularly important for small businesses. Based on conversations with tax experts, here are a few upcoming issues you may want to speak with your financial adviser about as you look toward year-end tax planning.
The Affordable Care Act. The ACA should be at the forefront of a business's tax planning agenda, especially if the business is over or close to the 50-employee threshold, said Timothy Todd, CPA and assistant professor of law at Liberty University School of Law. With the administration beginning to enforce the mandate in 2015, now is the time to plan, Todd said. For some employers, the mandate has been pushed out to 2016, so discuss this with your tax adviser if you're unsure how you'll be affected.
Corporate tax rates. Mike Trabold, director of compliance risk at payroll processing company Paychex, noted that one key issue in upcoming tax-reform proposals is corporate tax rates. Companies that are structured as corporations currently pay a higher tax rate than LLCs, partnerships and other tax-efficient business structures. Trabold said that if tax rates are lowered for corporations, small businesses that are structured a different way wouldn't get the same tax advantages unless there were a parallel amendment to personal tax rates.
Deduction eliminations and limit reductions. Small business owners will find that some tax credits they once depended on have expired or have been greatly reduced, said john Hewitt, CEO of Liberty Tax Service. Section 179 allows business owners to deduct the entire cost of certain assets, such as equipment and furniture, in the year of purchase rather than over a longer period of time. In the 2013 tax year, the deduction limit was $500,000, but this year, it has dropped significantly to $25,000. Bonus depreciation, whereby businesses could claim a 50-percent deduction for a qualified property they placed into service in the tax year, ended in 2013. The work opportunity tax credit, which had given employers a credit of up to $9,600 for hiring veterans and other workers in specific categories, is also gone, as is the energy tax incentive that helped employers go green by giving deductions for eco-friendly business features such as lighting.
Net investment income tax. The 3.8 percent tax on net investment income became effective in 2013, but it may surprise you if you are being affected for the first time in 2014. Todd explained that the tax applies to high-income individuals with investment income. Common scenarios where this new tax may be implicated is if you have rental income, a stock portfolio or other "passive" income.
Tax extenders. The proposed "tax extenders" bill is an effort to renew $85 billion in temporary tax breaks for individuals and businesses. Although Reuters reported that the bill is stalled in the Senate until after the congressional elections in November, any decisions that follow may affect the 2015 tax season, Trabold said. Whether your business has been taking advantage of any of the 50 tax breaks included in the bill or not, it's important to be prepared either way.
So what can you do now to make things easier when tax preparation season rolls around in a few months? The first thing you'll want to do is to make sure your records are up-to-date and that your financial documents are organized and easily accessible for tax season, especially for any potential deductions. [6 Important Questions for Small Business Tax Experts]
"Save everything," Todd said. "A lot of deductions require extra substantiation, such as meals, entertainment expenses and use of a personal vehicle. There's been a spate of tax court cases lately that has disallowed business deductions due to lack of record-keeping. If your business is audited, this is low-hanging fruit for the IRS to disallow."
Another smart tax-prep move is to take advantage of technology that will make organization and record-keeping easier for your small business. Jonathan Barsade, CEO of sales tax solutions provider Exactor, advised seeking a tax solution that is comprehensive, low-maintenance and easy to use.
"Modern technologies can automate the entire [tax] process for the small business owner, from the point of calculating the taxes at the time of the transaction, through the final generating and filing of the tax returns," Barsade told Business News Daily."There is no reason why a small business owner should spend any more than an hour each month on all of their tax compliance needs. The earlier the business owner proceeds towards automation, the less time they will need to work in tax season, which means more time remaining to focus on your business." You may also want to consider when is a good time to hire a CPA.
Related: See our picks for the best business tax software.
Most importantly, keep these and other tax issues on your radar by following financial news and checking in regularly with your accountant or tax adviser.
"Tax code changes regularly, and this year is no exception," Hewitt said. "A tax adviser will help ensure that your [documents] are organized and that your business is taking advantage of any tax savings that may be available. Depending on your situation, you may want to purchase new equipment, defer income or even hire personnel before the end of the year for tax savings purposes. A tax adviser can look at the business and help answer those questions."
"Things can change very quickly," Trabold added. "[Certain tax reforms] could be a real benefit to a small business, and you wouldn't want to lose an opportunity because you didn't move on it quickly enough. Keep an eye on the changing winds, and be ready to act if necessary."