With January only a few weeks away, business owners should already be thinking about year-end tax planning, and there are five significant tax regulations and credits they should evaluate before the New Year, according to Paychex.
Whether or not Congress will address these and other related tax provisions before the end of the month isn't clear, so the company, which provides payroll, human resources, insurance and benefits solutions for small- to medium-sized businesses, has offered advice for small business owners to consider.
“2013 has been a year of numerous regulatory and legislative changes that have tax implications for business owners,” said Paychex President and CEO Martin Mucci. “Paychex is dedicated to helping business owners understand these changes and the potential opportunities that exist for them to reduce their tax liability and save money. Fortunately, there is still enough time left in the calendar year for business owners to quickly consider the options available to them and determine if they can help their business.”
The five tax tips identified by Paychex are:
- Small Business Tax Credit
Certain small business owners who offer health coverage to employees can apply for the small business tax credit to help offset the cost of premiums, and those who don’t may now be able to afford it. Starting in 2014, the credit will be available to small employers who offer health benefits to their employees through the Small Business Health Options Program (SHOP) marketplace. Also in 2014, the amount of credit available to small business owners will increase. On November 27, the Health and Human Services (HHS) Department announced a one-year delay in online applications for the federally facilitated SHOP; however, the program itself has not been delayed. Employers can view plan options and which insurance companies offer SHOP-qualified health plans in their area on the healthcare.gov website. With the delay of the online applications, employers will need to work with an agent, broker, or insurer to purchase coverage.
Employers can utilize the Paychex Small Business Tax Credit Calculator to determine if they qualify for the credit, and if so, how much the credit will be. For more information about the small business tax credit, information on Paychex solutions, and coverage options, visit www.paychexinsurance.com.
- Defense of Marriage Act
The United States Supreme Court’s ruling on the Defense of Marriage Act earlier this year has had a significant effect on many federal laws including those related to payroll taxes, health insurance, and employment. The effect on state tax withholding will vary by state depending on whether the state recognizes same-sex marriages and/or chooses to follow the federal rules. This change in the law will not only affect the taxable income of employees, it will directly affect an employer’s tax liability because it is determined by the taxable income of employees. Individuals affected by this change also have the option to claim refunds and/or request adjustments due to overpayment of FICA taxes, and employers may be entitled to a refund of Federal Unemployment Tax Act (FUTA) taxes on wages paid to a legally married, same- gender spouse.
- Establish a Retirement Plan
If your business is considering starting a retirement plan, doing so before the end of the year is a good idea as it will allow you to write-off some of the set-up expenses and benefit from the tax advantages of any plan contributions. Businesses don’t have to start contributing to these plans until 2014.
- Business-Advantaged Tax Extenders
If Congress doesn’t pass legislation by the end of the year, several popular and beneficial business tax provisions will expire or be reduced in 2014. These include: accelerated Section 179 expensing for equipment, computer, software, and similar purchases; the 50 percent bonus depreciation; and the credit for research and development expenses. While these may be reconsidered by Congress next year, given the uncertainty in Washington, businesses may want to take advantage of the current provisions before the end of 2013.
- FUTA Credit Reduction
The U.S. Department of Labor has released the listing of FUTA Credit Reduction States for 2013. The Federal Unemployment Tax Act provides funds to the state unemployment tax systems. When the state funds are exhausted, the state may receive a loan from the federal fund. If the state is not able to pay back the loan in a timely fashion, the FUTA credit amount of 5.4 percent will be reduced as a way to recover the funds still owed. For 2013 there are 13 states, California, New York and Ohio among the largest, in addition to the Virgin Islands that are subject to a reduction of their FUTA credit. Employers in these states should budget accordingly, as their FUTA tax will increase retroactively to January.
These tips should be taken as general information only. Business owners and individuals looking for a more strategic way to minimize their tax obligations should discuss their specific situation with an experienced and credentialed professional, such as a CPA or Enrolled Agent.