December 17, 2015

Year-end tax planning tips for businesses

Before the year comes to a close, business owners should be looking for ways to minimize their 2015 tax bills while keeping an eye toward planning opportunities and obligations that will present themselves soon with little time to react.

Here are five things businesses should add to their to-do lists, and in some cases, be prepared to act upon before the New Year begins.

1.    Assemble team, compile information to comply with ACA reporting requirements

Large employers will, for the first time, be required to report information in 2016 as mandated by the Affordable Care Act. That information will be reflective of 2015, and the IRS will use it to determine whether individuals are entitled to premium assistance and, if necessary, enforce a penalty.

These reporting requirements are not applicable to all employers, however. Generally, those who have employed at least 50 full-time employees or equivalents are required to file two new forms in 2016 for the 2015 calendar year (find out how employees are classified under the ACA by clicking here).

Those forms are:

Before completing those forms, businesses should determine whether they fall under the ACA’s applicable large employer designation, including whether they are part of a controlled group,  and whether their health care coverage provides minimum essential, minimum value, and is affordable.

Additionally, the information needed to complete those forms will likely come from different personnel or departments within a company, in addition to the controller. Therefore, businesses will need to thoroughly research where the information originates -- health plan administrators, human resources departments, payroll processors, etc. -- before deciding which employee(s) will be chiefly responsible for completing these forms.

Because of the sheer amount of time and effort required to comply with these new reporting requirements, it is recommended that business owners start as soon as possible. Forms 1094 and 1095 must be filed with IRS no later than February 28 of each year (March 31 if filed electronically). Due date for 2015 forms are Feb. 29, 2016 (or March 31, 2016, if filing electronically). Employers issuing at least 250 Form W-2s must file electronically. There is an automatic 30 day extension of time to file the B or C series of forms, available by completing Form 8809. Employers must furnish Form 1095 to individuals listed in relevant Forms 1094 and 1095 by Jan. 31 of each year (or, by next business day if Jan. 31 falls on Saturday or Sunday). Electronic distribution is permitted as long as the IRS rules are followed, including obtaining the individual’s consent to receive Form 1095 electronically.

2.    Upgrade assets

If your business has been contemplating purchasing a new piece of equipment or machine, there is an incentive to do so before January.

Businesses looking to realize additional depreciation deductions or deduct the entire asset using the expensing election can do so by upgrading their assets in December. However, the asset must not only have been purchased this year, but it also needs to be placed into service before Jan. 1 in order to capture depreciation or write-offs for 2015.

3.    Pay executive bonus accruals

As discussed in a recent blog post, businesses that want to pay year-end bonuses before March 15 but deduct the accrued bonuses in the previous year need to take additional steps to protect the deduction of bonus payments made between Jan. 1 and March 15.

Businesses that want to deduct bonuses earned in 2015 that are paid out in early 2016, should take heed of these four tips to maximize accrued bonuses deductions to capture the maximum deduction and avoid any issues.

4.    Act immediately if extenders package is passed

Last year, Congress waited until December 16 to pass a tax extenders package, and we believe the 2015 extenders package will also be passed at the eleventh hour.

Because an extenders package, if passed, will likely have some benefits for small businesses, it’s imperative that business owners be prepared to act once news of a deal is announced. Otherwise, they could lose out on some important tax reduction opportunities.

Some of the tax provisions that expired in 2014 that could be making a short-lived comeback in December include: research and experimentation (R&D) credit; $500,000 equipment expensing election; the work opportunity tax credit; bonus depreciation and special rules for qualified small business stock.

5. Prepare for 2018

Though we’re about to enter 2016, there are several impending changes that will go into effect in 2018 that require a business owner’s attention now.

First, the new partnership audit rules, part of the Bipartisan Budget Act of 2015, replace TEFRA and Electing Large Partnership rules. The new rules are intended to streamline partnership audits. Partnerships with 100 or fewer qualifying partners would be permitted to opt out of the new rules, electing instead to be subject to audits on the level of each individual partner.

Businesses that have 101 or more qualifying partners should prepare now by reviewing their partnership or operating agreements to make sure that the individuals with decision making authority are going to act in the best interest of the former and current partners. Refer to our special alert on the partnership audit rule changes here for more information.

The second change that will come about in 2018 concerns the Cadillac Tax, which is associated with the ACA. It is a nondeductible 40 percent excise tax levied on health plans whose cost exceeds certain limits. It generally includes all health coverage but not excepted benefits. 

Regarding the Cadillac Tax, there are a lot of things that could change between now and 2018. Your preparation, at this point, should simply consist of educating yourself about the changes that could come about. Check out this article I wrote with fellow CBIZ blogger Zack Pace that answers some common questions about Cadillac Tax-related concerns.

In between wrapping gifts, enjoying holiday treats and hanging lights outside, be sure to follow the tips above before the end of the year to ensure your business starts 2016 off on the right foot!

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