As tax day approaches, individuals and businesses need to be sure that they are familiar with all of the changes that have been made to tax laws. Each year, the tax code undergoes multiple changes, and this year is no exception. No one wants to go through an Internal Revenue Service (IRS) audit or collection action. Failing to keep up with these changes could subject individuals and businesses to potential tax penalties if they do not pay their required taxes.
One of the most significant changes that businesses may face this year concerns the new requirements put in place by the Affordable Care Act. If businesses do not meet the qualifications imposed by the new law, they could face significant fines and penalties.
On January 1st, many other changes occurred that will impact taxes small businesses will have to pay. The first one that many people noticed concerned the expiration of certain payroll tax credits. Employers had to hold back two percent more of an employee’s income because of these changes.
For business owners, changes to tax rates may also change the way they pay themselves, or may force them to consider changes to the structure of the operations. Many businesses may be set up as C-Corporations, and owners take payments in the form of dividends instead of taking a salary. The rate of taxation on dividends has increased, meaning that much more of a business’s income will be lost to taxes. This is a crucial aspect for new business owners to consider when starting their companies, as each type of entity will have different tax implications.
Certain deductions have increased for businesses, including those associated with depreciation of equipment. The maximum deduction under Section 179 of the IRS Tax Code has increased to $500,000, much higher than the limit of $125,000 previously in place.
Many businesses often struggle with the ever-changing nature of the tax code. They believe that it is difficult for them to engage in any strategic planning for the future, because they do not know which taxes or deductions will be made permanent. If they fail to report income as required, they could be facing IRS collection actions, which can have a significant impact upon the financial health of many businesses.
If you have questions about tax issues, speak to an experienced tax attorney in your area to discuss the potential options that may be available to you. It is important to understand what challenges you may be facing, so that you can create solutions that allow you to run your business more efficiently.