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, CPAThompson Kessler Wiest & Borquist PC

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

Small Business Health Care Tax Credit

• Small businesses can qualify for a credit basedon health 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 employeehealth insurance premiums

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

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%

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

Repair and Capitalization Regulations

• Areas affected

- Capital expenditures

- Materials and supplies

- Repairs and maintenance

- Acquisition and production costs

- Improvement costs

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

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

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%

Home Office Deduction

• New safe harbor method

- $5 per square foot

- Up to 300 square feet

• Regular and exclusive use

SMALL BUSINESS PLANNING ISSUESLooking Beyond the Current Tax Return

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

Choice of Entity

• Sole proprietorships

• Flow-through entities

- Partnerships

- LLCs

- S corporations

• Double taxation

• New individual tax rates

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

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

State and Local Tax Concerns

• Nexus

• Filing requirements

• Apportionment issues

• Withholding requirements

• Oregon developments

Planning Opportunities

• Added complexity may open up new opportunities

• CPA and small business owner partnership

• Year-round tax planning

Copyright © 2011 American Institute of CPAs

Copyright © 2013 American Institute of CPAs

Questions

KatieP@ThompsonKessler.comYuliaS@ThompsonKessler.com

111 SW Columbia Street, Suite 750Portland, Oregon 97201

(503) 225-1612