Tax Updates

Auto Mileage Deduction Effective 1/1/2015. Business Mileage 57.5 cents per mile; Medical and moving mileage 23 cents per mile; Charitable Mileage 14 cents per mile.

IRS says Stand-Alone HRA’s and Medical Insurance Premium Reimbursement Arrangements Violate ACA – A“health reimbursement arrangement”(HRA) is an arrangement where an employer reimburses an employee for medical expenses as defined under §213(d) of the Code up to a maximum dollar amount. An “employer payment plan” is an arrangement where the employer reimburses an employee’s substantiated premiums for non-employer sponsored medical insurance. An employer payment plan also includes the payment of the premiums for an employee’s non-employer sponsored medical insurance directly to the insurance company. An HRA or an employer payment plan will not comply with the Affordable Care Act (ACA) unless the employer also provides a qualifying ACA medical plan along with the HRA or the employer payment plan. Section 4980D provides that an employer providing a medical plan covering more than one current employee that violates the provisions of ACA could be subject to a excise tax of up to $100 per day for each employee covered under the plan.  Therefore, unless the IRS and the DOL change their minds, providing a stand-alone HRA or an employer payment plan (e.g., reimbursing premiums paid by an employee for non-employer sponsored medical insurance coverage) for two or more current employees, could subject an employer to a $100 per day per employee excise tax (i.e., up to $36,500 per year/per employee).  If the S corporation only reimburses the medical insurance premium (or pays the premium directly to the insurance company) for one S corporation shareholder/employee and no other employee (shareholder/employee or other employee), the reimbursement arrangement would only cover one current employee and ACA may not apply to that employer payment plan.

Increased and Expended §179 Deduction (§179(b)(1), (2), and (f)).  The maximum §179 deduction of $500,000 is to be reduced to $25,000 for property placed-in-service in tax years beginning after 2014 and the phase-out threshold is schedule to drop for $2,000,00 to $200,000 for property placed-in-service in tax years beginning after 2014.

New De Minimis Safe Harbor Rules for Capitalization of Assets: Final Regulation 1.263(a)-1(f) provides a de minimis safe harbor election and

Provides rules for materials and supplies
Addresses repairs and maintenance
Provides general rules for capital expenditures
Provides rules for amounts paid for the acquisition or production of tangible property
Provides rules for amount paid for the improvement of tangible property
If the amount paid for the property is < $500 per invoice (or per items substantiated on the invoice), or the property has an economic useful life of < 12 month, the amount paid is expensed on the books, otherwise the assets are capitalized and depreciated.

A business wishing to use the de minimis safe harbor should make certain that it has accounting procedures in place prior to the beginning of the upcoming tax year treating as an expense amounts paid for $500 or less. The accounting procedures should (to be safe) be in writing for a business. In addition, the business should discuss with its vendors the possibility of billing for installation costs, delivery costs, and other “additional costs” on a separate invoice from the invoice for any assets purchased by the business so that these amounts will not be required to be included in the calculation of the $500 thresholds and may be expensed.

Examples:

In Year 1, A purchases 10 printers at $250 each for a total cost of $2,500 as indicated by the invoice. Assume that each printer is a unit of property under Reg. 1.263(a)-3(e). The amounts paid for the printers meet the requirements for the de minimis safe harbor. If A elects to apply the de minimis safe harbor in Year 1, A may not capitalize the amounts paid for the 10 printers or any other amounts meeting the criteria for the de minimis safe harbor. Instead, A may deduct these amounts under Reg. 1.162-1 in the taxable year the amounts are paid, provided the amounts otherwise constitute deductible ordinary and necessary expenses incurred in carrying on a trade or business.

In Year 1, B purchases 10 computers at $600 each for a total cost of $6,000 as indicated by the invoice. Assume that each computer is a unit of property under Reg. 1.263(a)-3(e). The amounts paid for the printers do not meet the requirements for the de minimis safe harbor because the amount paid for the property exceeds $500 per invoice (or per item as substantiated by the invoice). B may not apply the de minimis safe harbor election to the amounts paid for the 10 computers and must capitalize and depreciate the computers.