New & Extended Tax Laws to Consider Prior to Filing Your 2014 Business or Individual Income Tax Returns

Very important tax changes and developments have occurred in the past three months for individuals and businesses.  Please note that this article is not all inclusive of the 2014 and 2015 tax laws, and if more info is needed, feel free to contact us.

Wouldn’t it be nice if tax laws were simple?  Simplicity is a good thing, however, legislation and lawmakers often do not see the challenges and complexities that arise from new tax laws when they craft their laws.  Fortunately, we can make the new tax laws and changes simpler for you.   In December of 2014, the Tax Increase Prevention Act was signed into law, temporarily extending over 50 expired tax provisions, including bonus depreciation and the increased section 179 depreciation expense limits for businesses.  This extension only applies for 2014, so we will have to wait and see which laws will be extended through 2015 until later this year.

Individuals:

Health care impacts 2014 income tax returns:

The IRS has provided details on how health care reform under the Affordable Care Act (ACA) affects the upcoming income tax return filing season. One of the most important ACA tax provision for individuals and families is the premium tax credit, a new credit. Under another key provision, individuals without coverage and those who don’t maintain coverage throughout the year must have an exemption or make an individual shared responsibility payment, as separately detailed in final regulations and a notice issued by the IRS in November. The IRS stresses that most people already have qualifying health care coverage and will only need to check a box to indicate that they satisfy the individual shared responsibility provision when they file their tax returns this year.  The shared responsibility payment is basically a tax on the uninsured.

Individuals and families who get coverage through the Health Insurance Marketplace (Marketplace, also known as an exchange) may be eligible for the premium tax credit. Eligible individuals and families can choose to have advance credit payments paid directly to their insurance company to lower what they pay out-of-pocket for their monthly premiums. Early in 2015, individuals who bought health insurance through the Marketplace will receive Form 1095-A, Health Insurance Marketplace Statement, which includes information about their coverage and any premium assistance received in 2014. Form 1095-A will help individuals complete their return. Individuals claiming the premium tax credit, including those who received advance payments of the premium tax credit, must file a federal income tax return for the year and attach Form 8962, Premium Tax Credit.  The IRS Describes (at www.irs.gov) this new forms use as ” Use Form 8962 to figure the amount of your premium tax credit (PTC) and reconcile it with any advance payments of premium tax credit (APTC).”

 Businesses:

The IRS is having budget woes in 2015, so may be best to have written correspondence prepared from a tax professionals to provide assistance in resolving federal issues, as the IRS will have long wait times on their phone lines due to being under staffed.  Here are some important new federal tax options to consider for your 2014 tax returns:

The law passed the end of December extended the Section 179 election to expense up to $500,000 in the costs of equipment placed in service in 2014, without this extension the limit would have only been $25,000.  Also the extension allows a 50% bonus depreciation in the first year for new equipment placed in service in 2014.

  • Consider the annual safe harbor election for de minimis repairs and tangible property for business and rental activity ($500 with no CPA audited financial statement and $5,000 with CPA audited financial statement.) If you make this election for example, a $400 computer (which is tangible property) would be an expense and not an asset that needs to be capitalized then depreciated.
  • Consider the small taxpayer/small building election to deduct up to 2% (limited to $10,000) of the building’s unadjusted basis in repairs and improvements. No capitalization is required on improvements included in the 2% amount.
  • Consider the partial disposition election if the taxpayer adds a capital improvement to his or her business or rental property. A new roof might have to be capitalized and depreciated, but the disposition of the “old roof” will generate a loss to help with the tax bill.
  • Consider filing a Form 3115, Change in Accounting Method, for a business that qualifies in a prior year for a partial disposition loss because of capitalizing an improvement to their business or rental property in 2014. For 2014 the $7,000 fee associated with this form is waived, meaning there won’t be a fee of $7,000 required to be paid to the IRS when filing this form. This IRS imposed fee may apply in future years so we recommend all businesses file this form with their 2014 returns as a protective change even if the filing has no change in the amounts reported.

Now that California has finally managed to solve its budget woes, the state is taking a much more strategic approach to providing targeted tax incentives to help businesses expand and grow. California’s Enterprise Zone programs were repealed last year, and more targeted programs were enacted in their place. There have been many changes in the area of state taxes and credits over the last few years, here’s a short overview. These include:

  • New Employment Credit: If you qualify, your business can receive a tax credit of up to 35% of wages paid to qualified employees for up to five years. Businesses must be located in a designated geographic area to qualify, but these areas are located throughout the state and throughout many of our local communities. The credit is no longer limited to entry level, but to higher wages paid to more highly skilled workers.
  • California Competes Credit: You may qualify for a credit through the Governor’s Business and Economic Development Office (GO-Biz) for creating new jobs, and growing investments in California business. Twenty-five percent of these credits will be awarded to small businesses.

So what’s in store for 2015 taxes?  We expect that they will be very similar to 2014, with more IRS scrutiny on health care compliance and the repairs & maintenance regulations compliance, with higher tax rates for those that have high incomes.  Also similar to 2014, many of the extended tax provisions were only extended through 2014, so it will be up to congress to extend them further, which we predict may happen towards the end of 2015.  Have a great year and be proactive with your return this year as there are many items you’ll not want to miss.

Article contributed by Jesse Kaplan, CPA, Gilbert Associates, Inc. CPAs and Advisors