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Tuesday, April 28, 2015

2015 Small Business Tax Update

2015 Small Business Tax Update



In the height of the economic downturn, Congress enacted several temporary tax incentives to spur economic growth.  Congress votes yearly whether to extend these incentives, make them permanent, or let them expire.  This year, several incentives were kept and some were allowed to expire.  This article provides general information on some of the recent changes that may impact small businesses in the coming year.



Expensing Depreciable Business Assets



small businessInternal Revenue Code (IRC) §179 is stimulus provision for small businesses.  The effect is to permit small businesses to deduct the cost of business assets in the current tax year rather than to capitalize the assets over a period of years.  Congress justified this provision as a subsidy for small businesses.  In 2014, businesses could deduct up to $500,000 in equipment purchases as long as they spent less than $2 million on equipment.  Section 179 was renewed by the House in February and the House voted to make it a permanent part of the IRC.  The fate of the bill now rests with the Senate, if the Senate does not approve the bill, §179 will revert back to the prior amounts of only being able to deduct $25,000 in equipment purchases for 2015.  The House and Senate did not approve to extend this section for 2014 until December so we may not know the true fate of this section until late this year.  You should keep whether or not you would rely on a tax deduction in mind when making large equipment purchases.  You may or may not have the benefit of these large deductions for your purchases for the 2015 tax year.



Bonus Depreciation



Bonus depreciation is where businesses deduct 50% of the adjusted basis of most property acquired during the applicable year up to a maximum of $500,000.  Unlike §179, this deduction was not limited to small businesses.  Businesses were able to deduct a substantial portion of the cost of purchasing equipment and other assets in the year of acquisition.  Proponents of this incentive argued that it would jump-start the economy.  This incentive was also a temporary stimulus provision and is set to expire.  If you are a business looking to make large expenditures on equipment this year, do not rely on potential tax incentives as a factor in your equipment purchasing decisions.  You may not know whether the incentive will be available until December of 2015.  Be cautious in this area and do not be over reliant on tax incentives for equipment purchases.



Affordable Care Act - Employer Mandate



The Employer Mandate of the Affordable Care Act requires all businesses with 50+ full-time employees (working 30+ hours per week) to provide health insurance for their full-time employees or pay a penalty.  The mandate does not go into effect for everyone starting in 2015.




  • For companies that employ 100 or more full-time employees, the employer is required to offer health insurance coverage to 70% of the full-time employees and dependents age 26 and under in the 2015 tax year.  For the 2016 tax year, that percentage increases to 95% of full-time employees and dependents age 26 and under.

  • For companies that employ 50-99 full-time employees, the mandate does not go into effect until 2016 in which the employer must offer health insurance coverage to 95% of full-time employees and dependents age 26 and under.



The penalty for not complying with the mandate is $2,000 per full-time employee over the first 30 employees.  For example, if you have 50 employees and you do not offer any health insurance benefits to them, then your penalty would be $40,000.  Employers who offer insufficient coverage that fails to meet the quality and affordability standards of the Affordable Care Act will pay a penalty of the lesser of either $2,000 per full-time employee, excluding the first 30 employees, or $3,000 per full-time employee who receives federal insurance subsidies.

The mandate also classifies a full-time employee as anyone who works 30+ hours per week.  This is important to consider because your company may have more full-time employees under this classification than under other employment standards.  Therefore, you need to analyze your staffing needs now to determine which category you fit under and which year the mandate will go into effect for your company to avoid paying penalties.

401k Plan Limits

The thresholds for 401k contributions by employees as well as matching contributions by employers have increased slightly.  In 2015, employees exclude up to $18,000 of 401k contributions.  The combined total contribution for employee and employer is $53,000.  This is only a $500 increase in contribution amounts from 2014 but those small amounts build with each employee that you provide matching 401k contributions for.  There's an additional $500 that you can contribute for each employee this year.

Corporate Tax Reform

Corporate tax reform is on the agenda for 2015.  The corporate tax rate is currently 35%.  President Obama wants to lower the corporate tax rate to 28% and wants to pay for that cut in rate with a significant decrease in the amount of deductions and credits that all businesses can utilize in lowering the amount of tax owed.  That could mean that the amount of taxes paid by small businesses, especially those in the pass-through tax structure may pay a lot more in taxes.  Examples of deductions under review include the §199 domestic manufacturing deduction, the depreciations schedule for business equipment, and the advertising deduction.

Attorney Angel Oliver/McGrath & Spielberger, PLLC assists clients with all sorts of tax, business, and estate planning matters in North Carolina.  Click here to contact Ms. Oliver about your tax, business, or estate planning matter today.