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36 April 2014 | beautystorebusiness.com TAX RATES For the most part, tax rates will be higher in 2014 than in recent years. In fact, at the highest scale of income, taxes will be the most punitive since the 1990s. If your company is structured as a Subchapter S and your business income flows straight through to your personal tax return, you will likely see an increase in federal taxes in 2014. You can find the complete tax tables at the IRS website (irs.gov), but the new tax rates range from 10% of taxable income at $9,075 to $118,119 plus 39.6% of the excess more than $406,750 for those making over $406,750. (These rates refer to taxable income of single filers.) The highest tax rate of 39.6% compares to the previous cap of 36% in 2013. Of course, the same rates apply to all ordinary income paid to owners and employees out of a business structured as a Limited Liability Corporation, a C-Corporation or a Partnership. You may, however, be able to reduce your total tax burden if structured as an LLC, C-Corp or Partnership by leaving more profits in your business, where tax rates generally cap out at 35%. No matter how you are structured, you should seek tax advice from a certified public accountant in determining how much to leave in the business and how much to pay key employees and owners. Two other key income-tax rate changes at the federal level are related to dividends and long-term gains and Alternative Minimum Tax, according to The Kiplinger Tax Letter (kiplinger. com). The 20% top rate on dividends and long-term gains begins at a slightly higher level than in 2013 (for singles, it is $406,750). However, this income will also be subject to the new 3.8% Medicare surtax rate, boosting the total tax rate to 23.8%. The AMT exemption rate increases slightly to $54,800 for singles with the phase-out levels for the exemption also starting at higher levels ($117,300 for singles). Finally, while the estate-tax rate remains at 40% for 2014, the exemption increases to $5,340,000. Additionally, the personal exemption level increases $50 to $3,950, while the standard deduction level rises slightly in 2014 with singles able to claim $6,200 ($12,400 for married tax filers). Both include phaseouts as adjusted gross income increases. ASSET PURCHASE WRITE-OFFS AND BONUS DEPRECIATION In recent years, businesses were incented to accelerate asset purchases with historically high allowances for 100% expensing up to $500,000 of purchases of certain fixed assets—such as equipment and vehicles—as well as with 50% bonus depreciation on many other business assets. As of this writing—Congress has been known to make retroactive tax law changes—both were allowed to expire in 2014. The new limit for expensing of business assets has been reduced to $25,000. This will have a huge tax impact in 2014 if the law is not changed. For example, a business that purchased $250,000 in qualified assets in 2013 could have expensed the entire purchase. In 2014, only $25,000 can be expensed with the remainder of the assets subject to depreciation schedules. The $225,000 dif- ference would be subject to income taxes. If the entire $225,000 was taxed at 35%, this could result in a difference in tax liability of $78,750 in 2014. While much of this would be made up in future years as the assets are depreciated, it still has a tremendous comparative impact on cash flow in 2014. The 50% bonus depreciation rule that expired at the end of 2013 applied to tax treatment for other new-asset purchases— such as office equipment, computers, furniture, appliances and certain property improvements such as carpeting or a new fence. So if your business purchased $20,000 in new computers in 2013, you could directly expense $10,000 in 2013 with the remaining $10,000 subject to standard depreciation rates. Pay close attention to tax-related news out of Washington D.C., and consult your CPA before making major asset purchases. HEALTHCARE-RELATED The Patient Protection and Affordable Care Act brings a number of key changes for health care that will impact tax treat- ment in 2014. The changes are numerous and certainly require additional input from your CPA to sort out the aggregate T a x L a w C h a n g e s 2 0 1 4 . i n d d 3 6 Tax Law Changes 2014.indd 36 3 / 5 / 1 4 1 : 3 9 P M 3/5/14 1:39 PM