Small-business owners need to consider five tax regulations and credits that they should evaluate before the end of the year.
1. The 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 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 Web site.
2. Establish a retirement plan. If a business is considering starting a retirement plan, doing so before the end of the year is a good idea, as it will allow them 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.
3. 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; 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.
4. 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.
5. The Defense of Marriage Act. The 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, but 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 FUTA taxes on wages paid to a legally married, same-gender spouse.