Form 1040 has been around since 1913, even though that was 40 years before the IRS was called the Internal Revenue Service. Prior to that, it was named the Bureau of Internal Revenue when it was established in July 1862 to start collecting an income tax to pay for the Civil War. Except, that particular tax was repealed in 1872 and then reinstated in 1894, but the Supreme Court declared it unconstitutional in 1895. However, in 1909, Congress began levying a corporate excise tax, and then four years later we’re back to 1913 and Form 1040 and income tax for all kinds of Americans, with any number of changes being made to taxes and tax forms every year since.
Whew.
There are those who think this type of history is convoluted and those who find it fascinating. Fortunately for tax-paying individuals and companies, CPAs love it.
Taxing issues to keep in mind
Diana Hughes is both a certified public accountant and certified valuation analyst with Hisle & Company. She says the end of the year is a good time to review any changes in your filing status. For example, did you get married or divorced?
“If the latter and you have dependents, are you eligible to claim the dependency exemption?” Hughes said. “Have you maximized your retirement contributions? Are you eligible to make contributions to a Roth IRA?”
If you participate in a high-deductible health-insurance plan and maintain a health savings account, maximize your contribution to that HSA. Another recommendation from Hughes is to pay your property taxes before year-end so you can take the deduction for 2014.
“If you pay estimated tax payments,” Hughes said, “submit your fourth-quarter Kentucky estimate before Dec. 31, 2014, to take the deduction in 2014.”
The standard mileage rate for 2014 is 56 cents per mile for business miles, 23.5 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.
“In 2013, we saw the end to bonus depreciation for new depreciable assets,” Hughes said. “Section 179 deduction has dropped from $100,000 for assets placed in service prior to Jan. 1, 2014, to $25,000 for assets placed in service subsequent to Dec. 31, 2013.”
New rules for 2015
One of the proposed tax changes for 2015 by the current administration is the Buffett rule, which would impose a fair share tax, or FST, on taxpayers with high incomes. Another proposal is the self-employed contributions act, SECA, which would subject business owners who materially participate in providing services to a tax on their distributive shares of income from a partnership, LLC or S corporation. Also proposed is an allowance of “up to $20,000 of new business expenditures to be deducted in the taxable year in which a trade or business begins and to amortize the remaining amount ratable over the 180-month period beginning with the month in which the business begins,” according to Hughes.
The proposed small-employer healthcare credit would expand the group of employers who are eligible for the credit “to include employers with up to 50 full-time equivalent employees and would begin the phase-out at 20 full-time employees,” Hughes said.
Avoid health-care headaches
Health insurance is a quite the complex topic for business owners.
“One big change for the 2014 tax year is the existence of the federal and state health insurance marketplace,” said Irma Miller, whose company is Irma Miller MBA, CPA. Health-care plan alternatives for individuals and small businesses took effect Jan. 1, 2014.
Under the Affordable Care Act, individuals who qualify for an exemption to health insurance will file the new Form 8965. Miller urges small-business owners to be aware that federal and state marketplaces have “different rules to determine the exemption or premium tax credit.”
Form 1095-A is the health-insurance marketplace statement and should be sent out by Jan. 31, 2015, by the issuing marketplace.
“Starting with the 2015 tax year, there are Forms 1095-B [health coverage] and 1095-C [employer-provided health insurance offer and coverage],” Miller said.
According to Miller, tax preparers — especially CPAs, who have more continuing education than other tax preparers — should know “how to file the 2014 tax returns that involve the new tax forms related to the health-insurance marketplace for individuals and
small businesses.”
Miller knows that business owners have several choices for tax filing, including downloadable software, but human expertise is a good thing.
“We would emphasize that business owners should be aware that our profession has been educated to file your tax return correctly,” she said, “maximizing any legitimate benefits available to you, while minimizing the risk of your return being challenged.”
CPAs are capable of providing more proactive services beyond the tax return, according to Miller. “We can help with the accounting, consulting and advisory service all year long.”