Business tax considerations for 2015
Now that we're a month into the new year, here are three important tax considerations to keep in mind, which may impact your business or personal tax situation.
Section 179 depreciation and bonus depreciation
Beginning in 2015, the amount of fixed-asset purchases that can be deducted under Section 179 of the federal tax code has dropped to $25,000 from $500,000. Section 179 allows for the current deduction of the entire cost of certain fixed-asset purchases, capped at a specific dollar amount. The allowable deduction is phased out when assets purchased in the same year exceed a certain threshold.
For 2014, the maximum deduction of $500,000 was phased out when current-year additions reached $2 million. The deduction was completely phased out when additions reached $2.5 million.
But for 2015, business owners are facing a Section 179 limitation of $25,000 with phaseout beginning at $50,000 and completely eliminated at $75,000. As in previous years, these limits can be expanded by future legislation, so stay tuned.
Bonus depreciation, which allows the business owner to deduct half of the cost of a fixed asset in the year of acquisition, has been eliminated, for now. The balance of the cost may be deducted under Section 179 or depreciated under the depreciation rules. In past years, bonus depreciation has been extended by legislation.
Health care credit for small businesses
Small businesses, and even certain tax-exempt entities, have been entitled to a tax credit for health insurance costs they pay. The credit is claimed on Form 8941 and can be as high as 50 percent of the premiums an employer pays.
But to qualify for the credit, you must meet several requirements. First, the company must pay at least half of employees' health insurance costs. Second, the company must have fewer than 25 full-time equivalent employees. And finally, the average annual wages of those employees must be less than $50,000.
One important new requirement is that for tax years beginning in 2014 or later, the health insurance must be purchased through a Small Business Health Options Program (SHOP) Marketplace or qualify for an exemption. The exemption is generally for employers that changed plans partway through 2014 from a non-SHOP plan to a SHOP plan.
Long-term vs short-term capital gain holding periods
Holding periods, which cover the time from the purchase of an asset to its sale, are critical in determining the tax consequences of a sale and the after-tax return on an investment. The taxpayer should carefully review holding periods prior to selling assets. For example, the disposition of an asset held for up to one year will have the gain on the sale taxed at ordinary federal tax rates (as high as 39.6 percent) and 12 percent for Massachusetts, as opposed to lower long-term capital gains tax rates. Compare those rates to the federal long-term capital gains rate of 15 percent or 20 percent, depending on income level, and the Massachusetts long-term rate of 5.15 percent.
Attorney Allen J. Falke is a member of Mirick O'Connell's business and trusts and estates groups, focusing his practice on tax law and estate and business planning. Mirick O'Connell has offices in Worcester and Westborough.
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