Tax Changes Affecting Businesses
As you may have read in our first IRS 2014 Tax Changes article, the IRS made tax changes related to the Health Care Reform. In the second part of our IRS 2014 Tax Changes series, we will focus on tax changes related to businesses. The changes brought by the IRS are indeed affecting businesses through different aspects such as bonus depreciation, tax credits, gratuities and carpooling. Learn more about these changes here:
7) Section 179 expensing is reduced; bonus depreciation is gone.
Here is why business owners bought more capital equipment before 2013 ended.
In 2014, the Section 179 expense deduction for equipment purchases is capped at just $25,000 of the initial $200,000 of business property put into service this year. The 50% bonus depreciation companies took advantage of in recent years is no more, and the accelerated deduction for qualified real property in the year of purchase is gone too. 9, 10
8) No more Work Opportunity Tax Credit.
This was an incentive for companies to hire.
The WOTC (and its variants) gave employers a credit for hiring veterans, recipients of supplemental Social Security benefits and Americans receiving select types of government aid. The credit varied per hire, but it was as large as 40% of allowable wages for an employee (25% of allowable wages for employees who had worked less than 400 hours for the business). 10
9) Gratuities must now be treated as taxable wages.
Automatic tips may be history at many eateries.
Beginning this year, automatic gratuities are defined as service charges by the IRS, so they are taxable income. Practically speaking, this means a change for wait staff: instead of getting that money at the end of the night, they will get it as part of their paycheck. Darden Restaurants and Texas Roadhouse are among the players in the dining industry who have eliminated automatic gratuities this year, replacing them with suggested tip amounts on the bill. 6, 11
10) S-corporation relief has been extended.
The summer 2013 decision applies to many varieties of S corps.
In August, the IRS rolled out Revenue Procedure 2013-30, which unifies late-relief methods for many S-corp, ESBT, QSST, QSub and corporate classification elections. Starting this year, S-corps have up to 3 years and 75 days to request relief for eligible late elections after the intended start date of a late election. 7
11) Mass transit & carpool allowances for employees have been roughly halved for 2014.
Other qualified transportation fringe benefit limits remain the same, however.
In 2013, employers could provide up to $245 a month to an employee to subsidize their commutes to work via carpools, vanpools or mass transit, and get a tax deduction as a result. In 2014, the maximum monthly subsidy is $130.
Employers may still offer employees up to $250 a month in qualified parking benefits, and reimburse workers up to $20 per month for qualified bicycle commuting. 12
Because these changes can be overwhelming, contact ABIP today to raise any question you may have. One of our business tax experts will be able to assist you.
Continue learning about the IRS tax changes in our third article about Tax Changes Affecting Individuals & Households .
This Special Report is not intended as a guide for the preparation of tax returns. The information contained herein is general in nature and is not intended to be, and should not be construed as, legal, accounting or tax advice or opinion. No information herein was intended or written to be used by readers for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Readers are cautioned that this material may not be applicable to, or suitable for, their specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision. Both ABIP and MarketingLibrary.Net, Inc. disclaims any responsibility for positions taken by taxpayers in their individual cases or for any misunderstanding on the part of readers. Neither ABIP nor MarketingLibrary.Net, Inc. assume any obligation to inform readers of any changes in tax laws or other factors that could affect the information contained herein.
7. Humphrey, Scott. “Significant Tax Changes for 2013 & 2014”
6. “Federal Income Tax Changes in 2014”
9. Lipton, Richard. “Reviewing 2014 Tax Changes”
10. Cussen, Mark. “Major Tax Credits Expiring In 2013”
11. Aaron, Kumasi. “Restaurants changing tip procedure due to new tax law”