2017 Year-End Planning for Businesses
As 2017 draws to a close, there is still time to reduce your 2017 tax bill and plan ahead for 2018. This letter highlights several potential tax-saving opportunities for you to consider. As you may know, the government is aiming to significantly alter the tax code. The information below is the current law. A few areas of potential tax savings opportunities and some areas of possible concern are listed below.
Qualified Hurricane Contributions: As the result of the catastrophic damage caused by Hurricane Harvey, Hurricane Irma and Hurricane Maria, a qualified hurricane contribution deduction is available. Qualifying contributions are cash contributions paid by certain organizations during the period beginning on August 23, 2017, and ending on December 31, 2017, for relief efforts in the Hurricane Harvey, Hurricane Irma, or Hurricane Maria disaster areas and is acknowledged in writing by the receiving organization as having been used (or is to be used) for relief efforts in the respective disaster area. Qualified hurricane contributions are not subject to the general 10% limit but, instead, are allowed to the extent that the aggregate of such contributions does not exceed the corporation’s taxable income over the charitable contributions otherwise allowed. Certain excess contribution and carryover rules apply.
Equipment Purchases: If you purchase equipment, you may make a “§ 179 election,” which allows you to expense (i.e., currently deduct) otherwise depreciable business property, including computer software and qualified real property. Air conditioning and heating units placed in service during tax years beginning in or after 2016 are eligible for this deduction. You may elect to expense up to $510,000 in 2017 of equipment costs (with a phase-out for purchases in excess of $2,030,000 in 2017), and the deduction is subject to a business income limit.
In addition, careful timing of equipment purchases can result in favorable depreciation deductions in 2017. In general, under the “half-year convention,” you may deduct six months’ worth of depreciation for equipment that is placed in service on or before the last day of the tax year. (If more than 40% of the cost of all personal property placed in service occurs during the last quarter of the year, however, a “mid-quarter convention” applies, which lowers your depreciation deduction.)
Bonus Depreciation: For property acquired and placed in service during 2016 through 2019 (with an additional year for certain property with a longer production period), the bonus depreciation percentage is 50% for property placed in service during 2016 and 2017, with a phase down to 40% in 2018, and to 30% in 2019.
Self-Employed Health Insurance Premiums: Self-employed individuals are allowed to claim 100% of the amount paid during the taxable year for insurance that constitutes medical care for themselves, their spouses, and their dependents as an above-the-line deduction, without regard to the general 10%-of-AGI floor. Self Employed Health Insurance includes eligible long term health care premiums.
Vehicles Weighing Over 6,000 Pounds: A popular strategy in recent years is to purchase a vehicle for business purposes that exceeds the depreciation limits set by statute (i.e., a vehicle rated over 6,000 pounds). Doing so would not subject the purchase to the statutory dollar limit for depreciation: $3,160 for 2017; $3,560 in the case of vans and trucks (if bonus depreciation is taken, the 2017 amounts increase to $11,160 for cars and $11,560 for vans and trucks). Therefore, the vehicle would qualify for the full equipment expensing dollar amount. However, for SUVs (rated between 6,000 and 14,000 pounds gross vehicle weight) the expensing amount is limited to $25,000. Note that beginning in 2018, a phase-down period begins to lower the increase in depreciation limits when bonus depreciation is taken from $8,000 (2017) to $6,400 (2018). To maximize the first-year depreciation it is best to put the vehicle in service in 2017 if you were contemplating this action in the next few months.
Health Care and Other Employee Benefit Planning
Pay or Play Excise Tax: For the 2017 plan year, if you have 50 or more full-time equivalent employees, you could be subject to an excise tax, which could be as much as $2,260 per full-time employee, for failure to offer a health care plan that is minimum essential coverage to at least 95% of your full-time employees if at least one employee obtains subsidized coverage through a public health insurance exchange. The first 30 workers are excluded from the penalty excise tax. If you do offer coverage but it is not adequate or is unaffordable, the excise tax could be $3,390 for each full-time employee who obtains subsidized coverage through an exchange. Smaller employers should review whether they have undergone, or will soon undergo, any changes to their business structure that would require them to be aggregated with other entities and subject them to potential liability. Larger employers should consider their health care plan options in light of this potential excise tax liability.
Health Care Reporting: Filings for 2017 Forms 1095-C and Form 1094-C, generally for employers with 50 or more full-time equivalent employees, and Forms 1095-B and Form 1094-B, for employers with self-insured plans and other providers of minimum essential coverage, are due specifically by February 28, 2018, if you are filing on paper, or by April 2, 2018, if you are filing electronically. Statements to employees are due by January 31, 2018.
Health Reimbursement Arrangements: Certain small employers that want to assist their employees in obtaining health insurance may choose to set up a qualified small employer health reimbursement arrangement. The QSEHRA, unlike other health reimbursement arrangements, is a tax-favored arrangement that is not considered a group health plan and does not expose the employer to excise taxes for not satisfying Affordable Care Act requirements. It’s available to employers that have fewer than 50 full-time equivalent employees, do not offer any health plan, and meet notice and other requirements.
Credit for Employee Health Insurance Expenses of Small Employers: Some small employers that provide health coverage to their employees through a Small Business Health Options Program (SHOP) Exchange may be eligible to claim a credit if they pay for at least half of the premiums for health insurance coverage for their employees. Generally, employers with 10 or fewer full-time equivalent employees (FTEs) and an average annual per-employee wage of $26,200 or less are eligible for the full credit. In 2017, the credit amount begins to phase out for employers with either 11 FTEs or an average annual per-employee wage of more than $26,200. The credit is phased out completely for employers with 25 or more FTEs or an average annual per-employee wage of $52,400 or more. The credit is available on a sliding scale for up to 50% of the employer’s contribution toward employee health insurance premiums. The credit is available only for two consecutive taxable years after 2013, so it is not available to you if you or a predecessor claimed it for 2015 and 2016.
Tax Returns: For C corporations reporting on a calendar year, the 2017 filing deadline is on or before April 15th. For C corporations reporting on a fiscal year other than one ending June 30, the filing date is the 15th day of the fourth month following the close of the taxable year. For June 30 fiscal year C corporation filers, the filing deadline remains the 15th day of the third month following the close of the taxable year (September 15). Effective for returns for tax years beginning after December 31, 2016 and before January 1, 2026, there is generally an automatic six month extension for calendar year C corporations, and an automatic seven month extension for fiscal-year C corporations with a taxable year ending on June 30. For partnerships and S corporations reporting on a calendar year, the filing deadline is March 15th, and for partnerships and S corporations reporting on a fiscal year, the filing deadline is the 15th day of the third month following the close of the fiscal year.
FBAR: U.S. persons holding any financial interest in, or signature or other authority over, a foreign financial account exceeding $10,000 at any time in a calendar year must file a Report of Foreign Bank and Financial Accounts (FBAR) with the Treasury Department. The due date for 2017 is the same as the U.S. tax filing deadline of April 15, 2018 (unless extended by a weekend or holiday), with an automatic six-month extension to October 15. Accordingly, specific requests for this extension are not required. Due to Hurricane Harvey, Hurricane Irma and Hurricane Maria, the deadline has been further extended to January 31, 2018 for those in affected areas.
FATCA: The Foreign Account Tax Compliance Act (FATCA) requires reporting and possible withholding on payments made to foreign entities, whether the foreign payees are financial institutions or not. Your compliance processes need to be in place in advance of making any payments to foreign entities.
Please call Melton & Melton, LLP if you would like to address any questions you may have on the above items or to discuss options available for tax planning before year end.