It’s that time again for you, or your preparer, to do your 2015 income tax return. This may not be a pleasant activity for most small-business owners. But there’s good news: Many favorable tax breaks that had expired at the end of 2014 were extended for 2015. And cost-of-living adjustments to various dollar limits can mean greater write-off opportunities.
Here are eight key tax changes for your 2015 returns that may help you reduce your tax bill for the year or at least give you peace of mind.
1. You may have more time to file 2015 taxes.
Many small-business owners report their business income on personal income tax returns. The due date for individuals to file their 2015 federal income tax return is April 18, 2016 (or April 19 for those in Maine and Massachusetts). This is instead of the usual April 15 deadline.
If you request a filing extension, you’ll have until October 17, 2016, to file your return without a late filing penalty, instead of the usual October 15 extension date.
2. There are several ways to write off equipment purchases.
If you bought tablets, machinery and other items for your business in 2015, you may likely be able to fully deduct the cost on your tax return. The challenge is finding the best alternative for taking a deduction. There are several options:
- De minimis safe harbor for tangible personal property. You can opt to treat the item as material and supplies and claim a deduction of up to $500 per item or invoice (large companies with audited financial statements or certain other documents have a larger dollar amount). Using this option, which requires you to attach an election statement to your return, means you can’t include the item on your balance sheet.
- First-year expensing (Section 179 deduction). You can deduct up to a total of $500,000 for all your equipment purchases, assuming you didn’t place in service more than $2 million of equipment in 2015, and your business is profitable.
- Bonus depreciation. You can deduct 50 percent of the cost of new (not pre-owned) items.
- Regular depreciation. You can deduct a set percentage of the item’s cost. The percentage is fixed by law; e.g., 20 percent for the first year for property treated as having a five-year recovery period.
You can combine first-year expensing, bonus depreciation and regular depreciation to optimize your deductions. What’s more, these write-offs can be used whether you financed your purchases in whole or in part.
3. There’s a higher mileage rate for business driving.
If you use your personal car, light truck or van for business, you can deduct business-related driving costs. The deduction can be your actual outlays or based on an IRS-fixed mileage rate. The rate for business driving in 2015 is 57.5 cents per mile, up from 56 cents per mile in 2014. Either way, you can add your parking and tolls.
Caution: You must have records to prove your business mileage. This can be either a written record or an electronic record that you generate from an app for this purpose.
4. Retirement plan contribution limits are higher.
You can reduce your current tax bill and save for your future by contributing to a qualified retirement plan. Several options are available for small-business owners, as explained in IRS Publication 560 (while the IRS information has not been updated for 2015, the types of plans remain the same). The contribution limits for 2015 are higher than in 2014, allowing you to shelter more of your income. For example, the cap on profit-sharing plans and SEPs for 2015 is $53,000, which is up from $52,000 in 2014.
You can contribute to your plan for 2015 up to the extended due date of your 2015 return. However, you must have signed the paperwork for the plan by the end of 2015 in order to do this. The only exception is for SEPs, which can be set up and funded up to October 17, 2016, for a self-employed person who obtains a filing extension.
If you have employees, generally you must include them in your plans. However, you can take a tax credit for the administrative costs of setting up the plan and educating employees about it.
5. Tax credits are available for hiring new employees.
Your payroll costs for wages, benefits, insurance and payroll taxes may be considerable. Your costs can be reduced if you qualify for a tax credit for new hiring in 2015. Tax credits for hiring certain workers had expired at the end of 2014; all of these credits were reinstated for 2015. These credits include:
- Work opportunity credit for hiring an individual from a targeted group.
- Indian Employment Credit for hiring an individual who lives on or near a reservation.
- Empowerment zone credit for a business located within a designated distressed area that hires an individual who lives within the area.
6. Estimated taxes for 2016 reflect law changes.
The first installment of federal estimated tax for 2016 is due on April 18. In recent years, it may have been difficult to estimate what your taxes would be for the year, because tax rules have been uncertain. Fortunately, the tax rules for 2016 are known as a result of the Protecting Americans from Tax Hikes (PATH) Act of 2015 and already announced cost-of-living adjustments.
In figuring your estimated tax payments for 2016, take into account new tax rules that apply for 2016. For example, small businesses engaged in research and development may use the research credit as an offset to Social Security taxes up to $250,000, rather than as a reduction in income taxes.
7. Audit risk may be lower.
Being audited can be a nightmare for small-business owners, often costing them time, money and stress. Last November, the IRS Commissioner John Koskinen indicated that audits rates may continue to be low or go even lower in the near future.
8. There may be state income tax changes.
States with their own income taxes may have made changes in their rules for 2015 returns. Check your state income tax rules to see whether there are new tax breaks for you.
Get started now to determine how you’ll approach your 2015 return. For example, if you want to use a paid preparer, find one who best meets your needs. The IRS has a directory you can use for this purpose.
The information contained in this article is for generalized informational and educational purposes only and is not designed to substitute for, or replace, a professional opinion about any particular business or situation or judgment about the risks or appropriateness of any financial or business strategy or approach for any specific business or situation. THIS ARTICLE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. The views and opinions expressed in authored articles on OPEN Forum represent the opinion of their author and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions (including, without limitation, American Express OPEN). American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any opinion, advice or statement made in this article.
Seeking more information before filing your taxes? Read our exclusive guide to taxes: "It's Tax Time: A Business Owner's Survival Guide," featuring top insights from OPEN Forum authors.