While it seems the IRS piles on new regulations annually, the 2014 tax year is shaping up to be even busier in terms of updates and changes that could have a significant impact on both corporate and individual taxpayers. Here is a brief look at some of the new provisions that will require your attention in the months ahead.
Mid-size companies get another delay on healthcare mandate. Employers with 50 -99 full-time equivalent (FTE) employees now have until 2016 before they are required to provide affordable health care to employees. Businesses must file paperwork certifying that they are eligible for the delayed enforcement. Caution must be exercised, as “related party” businesses may be treated as a single unit for counting FTE. Employers of 100 or more FTE workers will still have to comply with the health care mandate in 2015, and should be looking into such issues as measurement and establishing a stability period.
Individuals must purchase health care coverage or be fined. Starting in 2015, individuals without employer-sponsored health care will be required to purchase their own coverage. The IRS will issue new forms for individuals to prove they have coverage, which will be confirmed with health care exchanges and insurers. If you are a Massachusetts resident, this is not news, as the state Department of Revenue has required this proof of coverage for several years. Now the IRS wants to see it, too.
Closely held business owners get a break. Many business owners used a formula clause when valuing transfers of interest to family members as method of establishing the value of the gift. The formula was used due to the uncertainty involved in valuing a private, closely held company. The formula clause should be considered when making significant gifts of interest in a business. The IRS disagreed, and tried to put a stop to this practice, but was overruled by the Tax Court. They are likely to continue this fight, so anyone using the formula method should be prepared to be challenged by the IRS.
The myRA savings plan offers an entry point to retirement saving. A “myRA” plan is similar to a basic Roth IRA, and may be attractive to employers and employees who do not currently have other retirement plans, and young people just starting to save. The myRA account would be funded by after-tax dollars, with a minimum requirement of just $25 to start. There is no employer match. Although principal cannot be lost, growth is limited because it is pegged to short-term Treasury Rate until the balance reaches $15,000 or the account has been in place for 30 years (whichever comes first), at which point the balance must be rolled over to a private sector retirement account.
New “Repair Regs” allow for easy change of accounting method. The new rules governing the deduction or capitalization of incidental materials, supplies, recurring maintenance expenses for buildings, and the cost of rehabbing building components are complex. These rules apply to almost all businesses, not just those in the real estate or construction industry. To help ease the transition, the IRS is allowing companies to automatically change accounting methods without seeking approval in advance. You probably don’t need to worry about this until filing your 2014 tax returns. Plus, there is still more to come on accounting method changes from repair regulations.
A new tax form for S Corporations. Certain S Corporations that have a trust, estate, or disregarded entity (including any single-member LLC) must complete and file a new Schedule B-1 with their tax return. The new form lists the shareholder name and tax ID, along with reported income or loss from the K-1 form. This is new, important, and you should pay attention closely if you are an S Corporation.
A note from the doctor is not good enough. Medical or family-related problems are insufficient excuses for not filing payroll tax returns. The Tax Court is cracking down hard on late filings, and is tightening “reasonable cause” decisions.
GRATs may be limited. Grantor Retained Annuity Trusts (GRAT) have been a favorable way to reduce the size of the estate tax burden. The U.S. Treasury Department wants to enforce a 10-year minimum term for GRATs, which could negate estate tax savings if the grantor dies before the 10-year term expires. If enacted, this new rule would not apply to already established GRATs. However, there may be new limitations placed on other estate and gift tax planning tools in the future. Now would be a good time to take advantage of these tools before they are no longer an attractive option.
Safe harbor for certain debtors who own real estate. Individuals (non-corporate taxpayers) who own real estate through a wholly-owned LLC now have a safe harbor to treat indebtedness secured by their ownership interest, so that the debt qualifies for the exclusion of indebtedness income.
Will “extenders” be extended? One of the most significant changes to taxes this year is something that nobody can accurately predict. In recent years Congress has extended many credits, such as the Section 179 deduction, bonus depreciation, and R&D credits, but only after much debate and usually at the last minute. We’ll all have to wait and see if this year is when Congress decides to stop the extenders, or if they will allow them to continue.
All of these tax changes – and many more – make it critical for you to obtain advice and guidance from a tax professional. If you have any questions about these or other tax issues, please contact the Gray, Gray & Gray Tax Department at (781) 407-0300.