Congress is slow to act with tax legislation until the ninth hour, so it’s hard to know exactly what will change for the upcoming filing. Should you defer income? If you want to buy assets, is it better to do it now or later?
Over the past several years Congress has failed to make drastic changes, but whatever happens, don’t let your taxes wag a sound financial opportunity for your business.
“Yes, we have an unclear picture, but as in years past, Congress is expected to pass a bill to retroactively extend more than 50 expired tax provisions. Companies should do what’s right financially and keep business as usual, whether it’s expanding operations, buying equipment or hiring employees,” says Steve Magovac, CPA, MT, tax senior director at BDO USA, LLP. “Then, as tax legislation is updated, we’ll maximize those benefits.”
There are a lot of incentive programs, however, that business owners aren’t aware of. That’s why it’s so important to reach out to your financial and tax advisers as soon as a concept or project starts to look viable — most of these programs require you to file an application before you take any action.
Smart Business spoke with Magovac about what you need to know about preparing for your taxes.
Although Congress may still make changes, what is clear at this point?
The biggest change, to this point, is the Affordable Care Act reporting requirements, where many corporations are required to prepare 1095-Cs, which are informational forms that are similar to 1099s. The purpose is to allow the IRS to confirm that whether employers are providing minimum essential coverage and that individuals subject to the individual mandate do in fact have coverage.
There are still a lot of unknowns with this, so proactively communicate with your health insurance carriers and payroll department or outsourced payroll company, in order to properly prepare these reports and avoid large penalties. There’s also talk that the IRS might give some reprieve, as long as you try to comply with the rules.
You mentioned Ohio credits and grants. Can you give some examples?
In Ohio, there are numerous grants, loans and tax credits available. A few common programs, if companies meet the eligibility requirements and filing procedures, companies may be eligible for are:
- The InvestOhio Tax Credit that provides a 10 percent tax credit for employee and capital growth.
- The Job Creation Tax Credit, a refundable tax credit for companies creating at least 25 new full-time jobs.
- A job training grant, which reimburses employers for up to 50 percent of the eligible employee training costs, up to $4,000 per employee.
Also, sole proprietors, rental real estate activities and owners of pass-through entities may benefit from the Ohio Small Business Investor Deduction. For 2015, the income deduction amounts to 75 percent of up to $250,000 ($187,500) of Ohio business income from being subject to Ohio income tax.
What are other programs to consider for the upcoming tax season?
If business owners are selling real estate and investing in a different location, or replacing old obsolete assets with similar replacements, they should consider a like kind exchange, also known as a 1031 exchange. This is where organizations expecting to recognize a gain on the disposition of old assets are able to defer the gain into the future.
Another program to consider is Cash Balance Pension Plan, which works well for businesses that are closely held, profitable and have a lot of cash flow. This employer-sponsored defined benefit retirement plan allows owners or a few key people to put additional dollars away, beyond their existing retirement plan.
In 2014 the IRS finalized the new tangible personal property rules. Employers need to, if they haven’t already, review their capitalization policies. If they meet certain provisions of the new regulations, companies can expense some of their fixed assets, rather than capitalizing and depreciating them, which also applies to certain repairs and maintenance expenditures.
These are just a few of the opportunities that can put you and your business into a better position. While you don’t want to let your taxes dictate business decisions, you also want to work with your advisers to take advantage of every tax opportunity.
Insights Accounting & Consulting is brought to you by BDO USA, LLP