The dawn of 2013 brought the biggest tax changes in more than a decade, and this dramatic reshaping of the tax code will change tax planning.
The resolution to the fiscal cliff standoff increased taxes by more than $600 billion and rewrote scores of rules. The rates on many types of income rose in 2013 for high-income taxpayers, and a new Medicare tax on investment income is effective for the first time this year.
Some of the most important 2013 tax planning considerations include:
- Understand how new rates affect your business entity. The 2013 tax increases that came on individual income also affect businesses. C corporation rates remain the same at the entity level, but rates are now higher when the corporation distributes its earnings as dividends or the owners sell the stock. Pass-through businesses, like partnerships and S corporations, are affected more directly by the individual rate increases because these entities are taxed only at the individual level.
- Expense business investments. 2013 may be the last opportunity to deduct so much of your business investments upfront. Lawmakers extended two provisions, bonus depreciation and Section 179 expensing, which allow you to deduct investments in your business more quickly.
- Understand health care reform requirements. While some health care reform legislation requirements were delayed, employers still face many new rules. Important requirements taking effect between 2012 and 2015 include: a $2,500 limit on flexible spending arrangements; a new fee of $1 per person covered by health insurance; and employee disclosure on benefits and coverage. The IRS delayed until 2015 the “pay or play” mandate, which imposes penalties for employers with more than 50 full-time equivalent employees and don’t offer health insurance that meets certain standards.
- Take advantage of business extenders. Many business tax provisions known as “extenders” were put in place retroactively for 2012 and prospectively for 2013. These include: the research credit; 15-year cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements; the new markets tax credit; Subpart F exception for active financing income; look-through treatment for payments between related controlled foreign corporations under foreign personal holding company income rules; and the alternative fuel credit.