Tax Planning for Your Business: Do You Know Where to Start?
Category: Business Tax Planning
Posted: December 2015
There is much uncertainty for individual and business taxpayers, since popular tax credits and deductions for both groups have not been extended beyond their December 31, 2014 expiration dates. However, there are some strategies that can be used to reduce your tax burden for this year.
Managing income and expenses
Cash basis taxpayers should consider waiting until January to bill customers, and paying all outstanding bills in December to minimize taxable income. Accrual basis taxpayers might consider waiting until the new year to deliver goods or billable services.
Purchasing new equipment
Although Congress has not yet extended the advantage of bonus depreciation, businesses may still expense up to $25,000 of new equipment purchased under Section 179 of the Code. The amount deducted under this section may not exceed taxable income for taxpayers filing as S or C corporations or partnerships. Equipment purchases above the $25,000 amount will be subject to the regular depreciation rules.
Use of tax credits and special deductions
Small businesses with 25 or less full-time equivalent employees and average annual wages of $51,600 may qualify for the Small Business Health Care credit. The credit is available for employers who pay at least 50% of an individual employee’s health insurance premium for insurance offered through a state sponsored market exchange.
A Business Energy Investment Tax credit is available for energy equipment installed before December 31, 2016. Eligible purchases include solar energy systems, wind energy property, and fuel cells. The equipment must meet performance and quality standards prescribed by IRS regulations.
Businesses with qualified activities may take advantage of the Domestic Production Activities deduction, which may be as much as 9% of qualified DPA income generated in the United States. This deduction is generally considered in connection with construction services, but is also applicable to engineering and architectural services performed in connection with construction, and the manufacturing or production of tangible personal property. The deduction was designed to reward businesses that continue to operate in the United States, rather than sending work overseas.
OTHER NEWS AND UPDATES
Michigan Minimum Wage
Michigan’s minimum wage increases to $8.50 per hour beginning January 1, 2016. Tipped employees must be paid a minimum cash wage of $3.23 per hour, and if the tips and cash wage do not reach $8.50 per hour, the employer must pay the employee the difference. Minor employees ages 16 and 17 may be paid less than minimum wage. Due to Federal labor laws, that amount is $7.25 per hour beginning January 1, 2016.
Changes in tax filing deadlines
New tax legislation signed in July of 2015 has adjusted the tax-filing deadlines for partnerships and C corporations. For tax years beginning January 1, 2016, here are the new rules:
Partnership and S corporations must file their returns by the 15th day of the third month after the end of the tax year. Translated for most affected taxpayers: the due date is March 15, which is one month earlier for partnerships. This will allow individual taxpayer/partners to receive information in a timely manner to complete personal returns by the April 15 filing deadline.
C corporations must file returns by the 15th day of the fourth month after the end of the tax year. For calendar year corporations, this will be April 15 of the following year. A special rule for C corporations with June 30 year ends defers the filing deadline change until tax year’s ending June 30, 2027.