The Senate finally passed the 2014 Tax Extenders bill on December 16. Bill has significant benefits for businesses and individual taxpayers.
On December 16th, the Senate passed and sent to the President a $42 billion bill to extend dozens of expired tax credits and deductions retroactively for tax year 2014. Included in this bill is an increase in Section 179 expense to $500,000 (from $25,000), Bonus depreciation, and the ability to make charitable contributions from your IRA. Here is a summary of the tax provisions that are extended in the proposed legislation from RIA (common tax incentives have been highlighted) TIPA would extend the following individual provisions through 2014: • $250 above-the-line deduction for certain expenses of teachers (Code Sec. 62(a)(2)(D)); • Exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income; (Code Sec. 108(a)(1)(E)); • Parity for exclusion for employer-provided mass transit and parking benefits (Code Sec. 132(f)(2)); • Deduction for mortgage insurance premiums treated as qualified interest (Code Sec. 163(h)(3)(E)); • Deduction for state and local sales taxes (Code Sec. 164(b)(5)(I)); and • Above-the-line deduction for qualified tuition and related expenses. (Code Sec. 222(e)) TIPA would extend the following business provisions through 2014: • Research and experimentation credit (Code Sec. 41); • Low-income housing 9% credit rate freeze (extended for allocations made before Jan. 1, 2016) (Code Sec. 42); • Military housing allowance exclusion for determining whether a tenant in certain counties is low-income (section 3005 of 2008 Housing Assistance Tax Act); • Indian employment credit (Code Sec. 45A); • New markets tax credit (Code Sec. 45D); • Railroad track maintenance credit (Code Sec. 45G); • Mine rescue team training credit (Code Sec. 45N); • Employer wage credit for activated military reservists (Code Sec. 45P); • Work opportunity tax credit (Code Sec. 51); • Qualified zone academy bonds (Code Sec. 54E); • Classification of certain race horses as 3-year property (Code Sec. 168(e)(3)(A)); • 15-year straight line cost recovery for qualified leasehold property, qualified restaurant property, and qualified retail improvements (Code Sec. 168(e)(3)(E)); • 7-year recovery period for motorsports entertainment complexes (Code Sec. 168(i)(15)); • Accelerated depreciation for business property on Indian reservations (Code Sec. 168(j)); • 50% bonus depreciation (Code Sec. 168(k)); • Increase in expensing limit and in investment based phaseout amount and expanded definition of Section 179 property for certain real property (Code Sec. 179); • Election to expense mine safety equipment (Code Sec. 179E); • Special expensing rules for film and television production (Code Sec. 181(f)); • Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico (Code Sec. 199); • Modification of tax treatment of certain payments to controlling exempt organizations (Code Sec. 512); • Special treatment of certain dividends of regulated investment companies (RICs) (Code Sec. 871(k)); • RIC qualified investment entity treatment under FIRPTA (Code Sec. 897(h)); • Exceptions under Subpart F for active financing income (Code Sec. 953, Code Sec. 954); • Look-through treatment of payments between controlled foreign corporations (Code Sec. 954(c)(6)); • Special 100% gain exclusion for qualified small business stock (Code Sec. 1202); • Reduction in S corporation recognition period for built-in gains tax (Code Sec. 1374); • Empowerment zone tax incentives (Code Sec. 1391); • Temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands (Code Sec. 7652); and • American Samoa economic development credit. (section 19 of 2006 Tax Relief and Health Care Act) TIPA would extend the following charitable provisions through 2014: • Enhanced charitable deduction for contributions of food inventory (Code Sec. 170); • Basis adjustment to stock of S corporations making charitable contributions of property (Code Sec. 1367); • Special rules for contributions of capital gain real property for conservation purposes (Code Sec. 170(b)(1)(E), Code Sec. 170(b)(2)(B)); and • Tax-free distributions for charitable purposes from individual retirement account (IRA) accounts of taxpayers age 70 1/2 or older. (Code Sec. 408(d)(8)(F)) TIPA would extend the following energy provisions through 2014: • Credit for nonbusiness energy property (Code Sec. 25C); • Credit for second generation biofuel producer credit (Code Sec. 40(b)); • Incentives for biodiesel and renewable diesel (Code Sec. 40A); • Production credit for Indian coal facilities placed in service before 2009 (Code Sec. 45(e)(10)); • Credits with respect to facilities producing energy from certain renewable resources (Code Sec. 45(d)); • Credit for construction of energy efficient new homes (Code Sec. 45L); • Special allowance for second generation biofuel plant property (Code Sec. 168(l)); • Energy efficient commercial building deduction (Code Sec. 179D(h)); • Special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities (Code Sec. 451(i)); and • Incentives for alternative fuel and alternative fuel mixtures. (Code Sec. 6426, Code Sec. 6427) TIPA would extend the following provisions on multiemployer defined benefit pension plans through 2015: • Automatic extension of amortization periods (Code Sec. 431(d)(1)(C)); and • Shortfall funding method for plans in endangered or critical status. (sec. 221(c) of the Pension Protection Act of 2006, P.L. 109-280)
Currently, the Section 179 expense deduction for purchasing assets in 2014 is limited to $25,000. Many small businesses have used the Section 179 deduction to reduce their tax liabilities before the end of the year. Business owners may ask, what should I do if I need to purchase new equipment, buy it now or wait until January?
Two years ago, Congress extended the Section 179 limits in late December, actually passing the tax bill in January 2013 which was retroactive for all of 2012.
Who knows what will happen in the next five weeks before the end of the year.
If you are contemplating purchasing business assets before the end of the year, I would have everything in place to take delivery and place in service by the end of the year. Hopefully, Congress will take up these expired tax provisions in the next couple of weeks and make it retroactive for 2014. If not, you still get to take the current year regular depreciation deduction.
Under the provisions of the Affordable Care Act, employers will no longer be able to offer pre-tax reimbursement to employees for health insurance premiums paid by the employee individually. If an employer offers this benefit to more than one employee, then this violates the Affordable Care Act and will subject the employer to penalties.
If you have this type of arrangement, you will have to treat the premiums paid as taxable compensation in 2014.
Since 1961, the tax law has allowed employers to treat substantiated reimbursements of health insurance premiums as a qualifying tax exempt health insurance fringe benefit. The ACA eliminated this.
Unfortunately, many small businesses have used this provision for years to provide health insurance benefits to their employees at a lower cost that having a group health plan.
Here is the guidance from the IRS in Notice 2013-54 which was released in September:
A. Guidance on HRAs and Certain other Employer Healthcare Arrangements, Health FSAs, and Employee Assistance Programs or EAPs Under the Joint Jurisdiction of the Departments
1. Application of the Market Reform Provisions to HRAs and Certain other Employer Healthcare Arrangements
Question 1: The HRA FAQs provide that an employer-sponsored HRA cannot be integrated with individual market coverage, and, therefore, an HRA used to purchase coverage on the individual market will fail to comply with the annual dollar limit prohibition. May other types of group health plans used to purchase coverage on the individual market be integrated with that individual market coverage for purposes of the annual dollar limit prohibition?
Answer 1: No. A group health plan, including an HRA, used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of the annual dollar limit prohibition.
For example, a group health plan, such as an employer payment plan, that reimburses employees for an employee’s substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. However the employer payment plan will fail to comply with the annual dollar limit prohibition because (1) an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement, and (2) an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement.
Dear Clients and Friends:
With one year ending and another one beginning, payroll data and files need to be updated. The notices for the 2014 NC unemployment tax rates for businesses are in the process of being mailed. Please remember to update your payroll tax tables for this change after processing the last payroll for 2013.
In 2013, NC made significant changes to the individual income tax rates, exemptions, and deductions. As a result, all employers are required to obtain a new NC-4 or NC-4EZ from each employee by 01/01/2014. You may have already received a mailing from the state in regards to this. Here is a link to the NC Department of Revenue site with additional information and forms – http://www.dor.state.nc.us/press/2013/nc4requirement.html .
Remember that there may be year-end adjustments needed for filing your W-2s. These include, but are not limited to, the following – please contact us if you need assistance in calculating these amounts:
• If you provide a company vehicle to any employee (including company owners), the value of the personal use of the vehicle must be included in the W-2. This is income for federal withholding, FICA, Medicare, and FUTA purposes.
• If you provide group-term life insurance in excess of $50,000 to employees, the value of the life insurance in excess of the $50,000 must be included in the W-2.
• For this and similar non-cash compensation, you obviously cannot withhold tax when there is no cash payment. Therefore, you need to calculate this additional W-2 income before the last payroll of the year, so that you can withhold additional tax from the last payroll, if needed.
• For “S” corporations, the amount the company paid for accident and health insurance (including dental, cancer, long-term care, and other policies) must be included in the W-2 of certain shareholders (those owning more-than-2% of the company, and their spouses, children, and other related parties). The amount paid is taxable for federal withholding purposes, but is not taxable for FICA, FUTA, or Medicare purposes as long as coverage is offered to your employees.
• Note – the Internal Revenue Service has stated its intention to disallow the deduction for health insurance for more-than-2% “S” corporation shareholders if the company fails to include this health insurance in the W-2 of the shareholder.
• Note – 2013 Forms W-2 will include a box to disclose the amount of health insurance paid on behalf of employees. Other than the above adjustment for more-than-2% “S” corporation shareholders, this amount is not taxable income to the employee. This is only an information disclosure. Employers who send 250 or more forms W-2s are required to comply with this disclosure. Other employers, while not required to complete it, should consider doing so in order to show their employees the cost of the coverage paid on their behalf. The amount to report is the total value of group health and major medical plans (use COBRA amounts), self-funded plans, and employer contributions to health FSAs (flexible savings accounts) or HSAs (health savings accounts).
Please contact us if you have any questions.
In an effort to raise awareness of International Awareness Week, our firm would like to provide you with some basic steps that any organization may use to combat fraud.
Please click here for a List of Important Steps.
Courtesy of the Association of Certified Fraud Examiners.
If you have any questions or concerns, please do not hesitate to contact our office.
Firm Partner Sandra A. Miller holds the Certified Fraud Examiner credential.
Our firm is a proud Awards sponsor of the 5K ‘Run to Remember’ in Historic Kenansville, NC. This race raises funds to assist in providing relief to the patients and programs of the Carolina East Home Care & Hospice, Inc.
The 5K will be held on Saturday November 2, 2013.