Although tax season doesn’t officially begin for a few months, now is a good time for small business owners to start firing up their working capital calculators to adequately prepare their companies for the filing deadline. Without providing sufficient lead time for this often aggravating aspect of running a business, owners could find their enterprises short on the crucial capital necessary to grow the company or worse, keep the doors open.
With the New Year firmly upon us, so too are new tax regulations as well as upheavals in the business environment. These changes could create problems for owners who did not follow the updates or who misinterpret what these modifications to the tax code entail.
While some companies have dedicated bookkeepers and accountants to handle all the complexities of the tax codes, there are many businesses that do not have this support. In scenarios like this, it’s essential that there is a strategy in place to ensure every business pays its appropriate taxes, but also obtains all the deductions it’s entitled to get.
Perhaps the biggest new change to the tax code for 2016 comes as a result of regulations attached to the health care law. According to the IRS, businesses that have 51 to 99 prior-year employees will now be subject to the rules of the Affordable Care Act. In addition, the health care law also requires that these companies file a host of new data about this coverage, including benefits offered to the employees, the number of full-time equivalents and the hours employees work.
This new requirement will definitely impact the bottom line for many small businesses, which means owners must make the necessary financial resources to cover these changes. If companies fail to provide these health benefits, the IRS will assess a penalty of $2,000 per employee after the first 30 workers.
Not every change to the tax code will necessarily have a detrimental impact on the budget for small businesses. For example, Congress recently passed and President Obama signed into law a much-welcomed extension to Section 179. Businesses with revenues under $50 million in gross revenues will be able to deduct the cost of depreciable assets up to $500,000.
Prior to this year, the tax extension had only been approved on a year-to-year basis, but now this is permanent, which means business owners can plan for the ways in which they are going to use the depreciable assets. In addition, future amounts will be indexed for inflation.
Alongside the Section 179 extension, Congress also passed the Research & Development tax credit, The Wall Street Journal reported. This credit, which is also now permanent, will allow business to deduct the cost of R&D, which will let companies remain competitive in an increasingly globalized world.
With the rise of the on-demand workforce, telecommunications and freelancing opportunities for businesses, it’s imperative that owners properly classify those individuals performing work for the company. As TechCrunch noted, 2015 will go down as the year of the on-demand economy. Although the line between independent contractor and full-time employee might seem like it’s becoming blurry, make no mistake, the IRS has a fine line for reporting these individuals on its tax forms. If it is not properly classifying employees, a business will be subject to a host of fines and other penalties.
This also includes self-employed individuals, who will need to ensure they are paying attention to the nonpayment of the employer share, which generally needs to be paid with the quarterly estimated tax payments.