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TOP TAX ISSUES FOR SMALL BUSINESS What Will Affect Businesses This Year (and Beyond)

TOP TAX ISSUES FOR SMALL BUSINESS What Will Affect Businesses This Year (and Beyond). Updated January 27, 2014 Katie Powell, CPA and Yulia Sharapova-Leamy, CPA Thompson Kessler Wiest & Borquist PC. Cutting Through the Complexity. 2013 Survey by the National Small Business Association:

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TOP TAX ISSUES FOR SMALL BUSINESS What Will Affect Businesses This Year (and Beyond)

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  1. TOP TAX ISSUES FOR SMALL BUSINESSWhat Will Affect Businesses This Year (and Beyond) Updated January 27, 2014 Katie Powell, CPA and Yulia Sharapova-Leamy, CPA Thompson Kessler Wiest & Borquist PC

  2. Cutting Through the Complexity • 2013 Survey by the National SmallBusiness Association: • Most small companies spend more than40 hours a year dealing with federal taxes • 38% spend more than 80 hours a yearon tax compliance

  3. Small Business Health Care Tax Credit • Small businesses can qualify for a credit basedonhealth insurance premiums paid if they: • Have fewer than 25 FTE employees • Pay an average annual wage of lessthan $50,000 • Contribute 50% or more to employeehealthinsurance premiums

  4. Small Business Health Care Tax Credit • For tax years beginning in 2014, the credit is 50% of premiums paid(35% for small tax-exempt employers) • Credit will apply only to participants in the Small BusinessHealth Options Program (SHOP) Marketplace • SHOP opens to companies with up to 50employees; expected to expand in 2016

  5. New Tax Rates on Ordinary Income and Capital Gains • Highest individual income tax rate: 39.6% • Qualified dividend and long-term capitalgains tax rate: 20% for highest earners • If the new net investmentincome tax applies: 23.8%

  6. New 3.8% Tax on Net Investment Income • Modified adjusted gross income (MAGI): • >$250,000 for joint filers • >$200,000 for single filers • Tax applies to the lesser of: • Net investment income (NII) • Amount of MAGI > threshold • NII includes capital gains, interest,and dividend income frominvestment assets • May also apply to rental androyalty income

  7. Repair and Capitalization Regulations • Areas affected • Capital expenditures • Materials and supplies • Repairs and maintenance • Acquisition and production costs • Improvement costs

  8. Repair and Capitalization Regulations New safe harbor provisions • Capital expenditures up to $5,000 • Applicable financial statements • Written book capitalization policy • Capital expenditures up to $500 • Election to follow book capitalization policy • Materials and supplies up to $200

  9. Repair and Capitalization Regulations Annual election not to capitalize improvements • Repairs, maintenance, and improvements up to lesser of: • $10,000 • 2% of unadjusted building basis • Gross receipts up to $10 million • Building cost up to $1 million

  10. Section 179 Expense and Bonus Depreciation Deduction • Section 179 expense limit • 2013: $500,000 • 2014: $25,000 plus inflation • Section 179 threshold • 2013: $2,000,000 • 2014: $200,000 plus inflation • Bonus depreciation • 2013: 50% • 2014: 0%

  11. Home Office Deduction • New safeharbor method • $5 per squarefoot • Up to 300 square feet • Regular and exclusive use

  12. SMALL BUSINESS PLANNING ISSUESLooking Beyond the Current Tax Return

  13. Planning for Retirement and Business Succession • Variety of retirement savings options • SEP • SIMPLE • 401(k) • Succession planning starts now! • Expected and unexpected • Sources of financing

  14. Choice of Entity • Sole proprietorships • Flow-through entities • Partnerships • LLCs • S corporations • Double taxation • New individual tax rates

  15. Foreign Accounts Tax Compliance • Foreign bank account report (FBAR) • Annual requirement • Financial interest or signature authority • Maximum balance of $10,000 or more • Foreign financial asset report • Filed in addition to FBAR • Part of individual tax return

  16. Foreign Accounts Tax Compliance • Offshore voluntary disclosure initiative (OVDI) • Previously unreported accounts • Penalty of 27.5% of highest balance • Amended returns for up to 8 years

  17. State and Local Tax Concerns • Nexus • Filing requirements • Apportionment issues • Withholding requirements • Oregon developments

  18. Planning Opportunities • Added complexity may open up new opportunities • CPA and small business owner partnership • Year-round tax planning

  19. Questions KatieP@ThompsonKessler.com YuliaS@ThompsonKessler.com 111 SW Columbia Street, Suite 750 Portland, Oregon 97201 (503) 225-1612

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