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: -Most small companies spend more than 40 hours a year dealing with federal taxes -38% spend more than 80 hours a year on tax compliance

Small Business Health Care Tax Credit Small businesses can qualify for a credit based on health insurance premiums paid if they: -Have fewer than 25 FTE employees -Pay an average annual wage of less than $50,000 -Contribute 50% or more to employee health 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 Business Health Options Program (SHOP) Marketplace SHOP opens to companies with up to 50 employees; 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 capital gains tax rate: 20% for highest earners -If the new net investment income 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 from investment assets May also apply to rental and royalty 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, : $25,000 plus inflation Section 179 threshold -2013: $2,000, : $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 ISSUES Looking 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 111 SW Columbia Street, Suite 750 Portland, Oregon (503)