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 .
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