Another year is coming to an end! As the conclusion of 2014 draws near, ATBS wants to help all of our clients ensure that they have taken the necessary steps to make sure that their bases are covered when it comes to their tax liability. We have included some of the most common year-end planning tips that can help you avoid an unwanted tax surprise come April 15, 2015.

Year-end Tax Planning for Owner-Operators

Estimated Tax Payments. 

If you’re a business owner, the need to set aside a portion of your net income to pay your taxes is important. In order to limit the amount you will owe when you file your 2014 tax return, be sure to make quarterly estimated tax payments. If you participated with ATBS throughout 2014, you should have received communications periodically during 2014 about the amounts of your quarterly tax estimates. On average, business owners in the trucking industry pay about 25% of their net profit to federal income taxes and another 3-6% for state taxes. Look back at the year as a whole and calculate what 25% of your net profit is and make sure you have paid this amount as estimated tax payments for the year. If you have not made the required estimated tax payments to date, consider making a larger than normal 4th quarter estimate. The 4th quarter estimated tax payment is due January 15, 2015. 

Consider making an Individual Retirement Account (IRA) contribution.

You can make a contribution up to $5,500 for the year 2014 and you have until April 15, 2015 to pay it. A person who has reached age 50 or over in 2014 can make an additional $1,000 catch-up contribution. There are other retirement contribution avenues such as simplified employee plans (SEP), and savings incentive match plan for employees (SIMPLE). Please consult a financial planner for the best plan for your individual circumstances.

2014 Year-end Tax Planning for Owner-Operators

The Affordable Care Act. 

The tax implications of the Affordable Care Act (ACA) will start being felt during the preparation of your 2014 taxes. If you purchased health insurance coverage through either the State-Run or Federally-Run Health Care Exchanges (Marketplaces), you were able to select one of two choices for paying your premiums. The first was that you paid full price for your monthly health insurance premiums and then (if you qualified for the subsidy) would receive a premium assistance credit once your 2014 tax return is filed. The second, and most popular option, was to estimate your expected income for 2014 and have your premium assistance credit (if you qualified for the subsidy) applied to your monthly insurance premiums to lower the monthly premium payments. While the second option was more popular, because it resulted in lower monthly premium payments, it could cause a tax liability for the end of year taxes if you under estimated your expected income for 2014.

Changes that will affect your premium assistance credit include changes in household income during 2014, employment (hiring or termination), or family size (birth, death, or change in dependents). If your income increased, an unemployed spouse gained employment, or your number of dependents decreased from a previous year, the advance credit payments that you received to lower your monthly premium payment will be reconciled on your 2014 tax return and any overpayment of the credit will need to be paid by April 15, 2015. If your household income decreased, or you gained a dependent during 2014, the premium tax credit will be reconciled on your 2014 tax return and you may benefit from an additional credit.

You should review your family circumstances and health care coverage you had during the year. If you did not have any health care coverage for the year and did not qualify for an exemption, you will be subject to an Individual Shared Responsibility Payment (tax penalty). Talk to an ATBS tax professional about whether you may qualify for one of the listed exemptions. 

Charitable contributions.

Send cash donations to your favorite charity by December 31, 2014 and retain your canceled check or credit card receipt as proof of your donation. You will also need an acknowledgement from the charity if you contribute $250 or more.

Also, as the year comes to an end, you may consider cleaning out your closets and garage. Donations of household items, to a qualifying charitable organization, may help reduce your tax liability if you itemize your deductions.

If you donate a used car worth more than $500 to charity, your deduction will be limited to the amount the organization receives when it sells it. But you may be able to claim a bigger deduction based on the vehicle's fair-market value if the charity uses the vehicle in the charity’s normal operations or if the charity gives it to a needy individual.

Depreciation and Section 179 expense

Business owners should consider buying machinery and equipment before year-end, thereby securing depreciation deductions for 2014 and reducing their tax liability.

The business property expensing option (Section 179) has been greatly reduced in 2014 (unless Congress enacts legislation extending the expense limit), but business owners may still take advantage of Section 179. For tax years beginning in 2014, the expensing limit is $25,000, and the phase-out of the $25,000 expense limit starts to take effect when property placed in service during 2014 exceeds $200,000.

Unfortunately, 50% bonus depreciation for property placed in service after Dec. 31, 2013, has currently expired. At this point, it is unknown if Congress will extend bonus depreciation for 2014 and beyond.

Formation of an S corporation

Sole-proprietors or single-member LLCs (disregarded for federal tax purposes) may consider converting to an S corporation. Generally, ATBS believes this is cost justified if business net income is greater than $65,000 per year. As a shareholder of an S corporation, you can minimize self-employment taxes by paying yourself a reasonable salary and withdrawing additional funds as distributions. Unlike a sole-proprietorship, all income (distributed and undistributed) from an S corporation is not subject to self-employment tax.

Also remember to fill out the tax organizer that you will be receiving from ATBS within the next few weeks. When the tax organizer is complete, mail it in to ATBS with your tax documents. Please do this in a timely fashion to assist ATBS and provide us with sufficient time to complete your tax return. Missing important dates may delay the preparation of your tax return. Incomplete tax organizers may also delay the preparation of your tax return. If you have any questions, please contact your ATBS business consultant.

Image source: https://www.flickr.com/photos/92334668@N07/
Image source: https://www.flickr.com/photos/nomadic_lass/with/14025415635/

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Mike Calahan, ATBS Tax Services Manager

Mike Calahan joined ATBS in July of 2014 with more than 11 years of tax and accounting experience. He has a diverse background in tax with an emphasis in individual taxation, partnership taxation and several years experience with small businesses. As Manager of Tax Services, Mr. Calahan oversees the tax return preparation process, tax resolution services and supervises a large staff of tax professionals. He graduated from Regis University in 2004 with a Bachelor of Science Degree in Accounting and is an Enrolled Agent with the IRS.

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