2015 Tax Year in Review – Business Entities
Author: Robert Conner
Taxpayers beginning their year-end tax planning are focused on what Congress will do with the temporary tax breaks that expired December 31, 2014. While the fate of tax extenders is unclear, business owners shouldn’t overlook several recent tax law changes and clarifications that could significantly affect their situation.
Tax Extender Legislation
By the end of 2015, tax legislation that retroactively extends some of the tax provisions that expired in 2014 may be enacted. Monitor extender legislation if you’re contemplating a 2015 transaction that could be altered based on an expired provision. Here are some of the provisions that expired in 2014:
- Fifty percent bonus depreciation
- Fifteen-year recovery period for qualified leasehold improvement property, restaurant property and retail improvement property
- Increased Section 179 expensing to $500,000 (from $25,000) and increased phaseout of Section 179 investment amount to $2 million (from $200,000)
- Inclusion of certain computer software in the definition of Section 179 property
- Up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property as Section 179 property
- Reduced (five-year) recognition period for the S corporation “built-in gains” tax
- Twenty percent traditional research tax credit and 14 percent alternative simplified research tax credit
- Section 179D energy-efficient deductions for commercial buildings
- Work Opportunity Tax Credit
ACA Penalty Exposure for Small Employers
Much of the penalty focus stemming from the Patient Protection and Affordable Care Act (ACA) has been geared toward the requirement for large employers to offer ACA-compliant insurance to full-time employees. However, after July 1, 2015, small employers offering employer payment plans to two or more employees are subject to a penalty of $100 per day, per employee.
Through employer payment plan arrangements, the employer directly pays or reimburses employee-substantiated premiums for nonemployer-sponsored hospital and medical insurance and excludes the premiums from the employee’s income. Companies offering these arrangements should consider immediate steps necessary to comply with the ACA.
Repair & Capitalization Rules
Most taxpayers with fixed assets or supplies spent considerable time changing their accounting methods for tax years beginning on or after January 1, 2014, to comply with the new tangible property regulations (repair regulations). In many cases, this culminated with the filing of a 2014 Form 3115, which memorializes the changes in accounting method.
Although the changes have been implemented—or soon will be for fiscal-year taxpayers—the rules for 2015 and beyond must be monitored. For example, numerous elections apply on an annual basis, such as the de minimis expensing safe harbor, partial asset dispositions, small taxpayer safe harbor and book conformity. In addition, taxpayers should consider how the betterment, restoration and adaptation rules apply to a unit of property when analyzing a repair for capitalization purposes.
Highway Funding Fix Modifies Tax Return Due Dates
On July 31, 2015 the president signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, providing a three-month fix to prevent a funding lapse for the federal Highway Trust Fund. Congress modified several tax return due dates to help offset the costs. This table summarizes some of the key changes in effect for tax years beginning after December 31, 2015, for entities with a December 31 year-end.
Debt Limit Bill Changes IRS Partnership Audits
On November 2, 2015, the president signed the Bipartisan Budget Agreement of 2015, extending the debt limit deadline and avoiding a potential government shutdown. Among its provisions, the legislation changes the way the IRS audits partnerships. The new audit treatment is mandatory for tax years beginning after 2017, but partnerships may elect treatment under the new rules immediately.
Under the provision, the current Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and electing large partnership rules are repealed; the partnership audit rules are simplified to a single set of rules for auditing partnerships and their partners at the partnership level. The provision permits partnerships with 100 or fewer qualifying partners to opt out of the new rules—the partnership and partners would be audited under the general rules applicable to individual taxpayers.
Under the streamlined audit approach, the IRS examines the partnership’s items for a particular year. Any adjustments and resulting tax are taken into account by the partnership (not the individual partners) in the year the audit is completed. This represents a shift in tax payment—from those who were partners for the year under audit and received the benefit from the item at issue to the partnership and its current partners. As such, partnership agreements may need revisiting to account for these changes.
These are just some of the new issues that could affect businesses. Your BKD advisor can help you determine which issues could affect your specific situation.