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Nov 18, 201310:36 AMOpen Mic

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8 year-end tax tips for business owners

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The dawn of 2013 brought the biggest tax changes in more than a decade, and this dramatic reshaping of the tax code will change tax planning.

The resolution to the fiscal cliff standoff increased taxes by more than $600 billion and rewrote scores of rules. The rates on many types of income have risen in 2013 for high-income taxpayers, and a new Medicare tax on investment income is effective for the first time this year.

Some strategies that worked for taxpayers in the past won’t make sense anymore, and the law created new opportunities that didn’t exist previously. New planning techniques are needed to address the new taxes, rule changes, and rate increases.

Some of the most important 2013 tax planning considerations for businesses include:

1. Understanding the impact of new rates on your business entity. The 2013 tax increases came on individual income, but they also affect businesses. C-corp rates remain the same at the entity level, but rates are now higher when the corporation distributes its earnings as dividends or the owners sell the stock. Pass-through businesses, like partnerships and S-corps, are affected more directly by the individual rate increases because these entities are taxed only at the individual level. Taxpayers should understand how the new rates affect their entity and whether they affect their planning.

2. Expensing business investments. 2013 may be the last opportunity to deduct so much of your business investments upfront. Lawmakers extended two provisions, bonus depreciation and Section 179 expensing, which allow you to deduct investments in your business more quickly.

3. Understanding health care reform requirements. While some health care reform legislation requirements were delayed, employers still face many new rules. Important requirements taking effect between 2012 and 2015 include: a $2,500 limit on flexible spending arrangements, a new fee of $1 per person covered by health insurance, and employee disclosure on benefits and coverage. The IRS delayed until 2015 the “pay or play” mandate, which imposes penalties for employers with more than 50 full-time equivalent employees that don’t offer health insurance that meets certain standards.

4. Taking advantage of business extenders. Many valuable business tax provisions commonly known as “extenders” were carried forward through the end of 2013. These provisions were put in place retroactively for 2012 and prospectively for 2013 and include: the research credit; 15-year cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements; the new markets tax credit; the Subpart F exception for active financing income; look-through treatment for payments between related controlled foreign corporations under foreign personal holding company income rules; and the alternative fuel credit.


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