As part of Nardone Limited’s tax planning and tax controversy services that our seasoned attorneys provide, we wanted to summarize the President’s federal budget proposals for fiscal year 2015. The President released his budget on March 4, 2014, which covers many provisions that affect a wide variety of taxpayers.  Thus, we are only providing you a summary of those that most likely impact Nardone Limited’s clients.  In this specific blog post, we will cover the business tax proposals.  Later posts will cover personal income tax and estate planning proposals.

Nardone Limited Comment: Except as otherwise noted, the proposals would generally apply for tax years beginning, property placed in service, and other triggering events occurring, after December 31, 2014.

Nardone Limited (“Nardone Limited”) Summary of Business Tax Proposals

1. Permanently extend increased expensing of qualified property for small business under Internal Revenue Code §179, with a $500,000 deduction limit and phase-out beginning at $2 million, indexed for inflation for tax years beginning after 2013. Qualifying property would permanently include off-the-shelf computer software, however, it would not include real property.
2. Permanently extend the work opportunity tax credit (WOTC) to apply to wages paid to qualified individuals who begin work for the employer after December 31, 2013, and expand the definition of “qualified veteran” for individuals who begin work for the employer after December 31, 2014. Also, for tax years beginning after December 31, 2014, modify the calculation of the credit to equal 20{c91082aefe0e580fe546c40af534787b48cfd474f8c9ab8dac50bf49a7a1c43a} of the excess of qualified wages and health insurance costs paid or incurred by an employer in the current tax year over the amount of such wages and costs paid or incurred by the employer in the base year.
3. Effective after December 31, 2015, require employers that have been in business for at least two years, have over 10 employees, and do not currently offer a retirement plan to offer an automatic IRA option to employees, under which regular contributions would be made to an IRA on a pay-roll-deduction basis.
4. Repeal the exception from the pro rata interest expense disallowance rule for contracts covering employees, officers, or directors, other than 20{c91082aefe0e580fe546c40af534787b48cfd474f8c9ab8dac50bf49a7a1c43a} owners of a business that is the owner or beneficiary of the contracts.
5. Provide short-term relief relating to the employer Federal Unemployment Tax Act (FUTA) tax by suspending interest payments on the state unemployment insurance (UI) debt, suspending the FUTA credit reduction for employers in borrowing states in 2014 and 2015. Also, the proposal would raise the FUTA wage base in 2017 to $15,000 per worker, index the wage base to wage growth for subsequent years, and reduce the net Federal UI tax from 0.8{c91082aefe0e580fe546c40af534787b48cfd474f8c9ab8dac50bf49a7a1c43a} — after the proposed permanent reenactment and extension of the FUTA surtax — to 0.37{c91082aefe0e580fe546c40af534787b48cfd474f8c9ab8dac50bf49a7a1c43a}.
6. Effective for a partnership’s tax year beginning on or after the enactment date, amend IRC §704 (d) to allow a partner’s distributive share of expenditures not deductible in computing the partnership’s taxable income and not properly chargeable to capital account only to the extent of the partner’s adjusted basis in its partnership interest at the end of the partnership year in which such expenditure occurred.
7. Modify like-kind exchange rules for real property to limit the amount of capital gain deferred under Code §1031 from the exchange of real property to $1 million (indexed for inflation) per taxpayer per tax year.
8. Make the 100{c91082aefe0e580fe546c40af534787b48cfd474f8c9ab8dac50bf49a7a1c43a} exclusion for qualified small business stock (QSBS) permanent. The AMT preference item for gain excluded under Code §1202 would be repealed for all excluded small business stock gain. Also, the time for a taxpayer to reinvest the proceeds of sales of small business stock under Code §1045 would be increased to six months for QSBS the taxpayer has held longer than three years.
9. For tax years ending on or after the enactment date, permanently allow up to $20,000 of new business expenditures to be deducted in the tax year in which a trade or business begins and the remaining amount to be amortized ratably over the 180-month period beginning with the month in which the new business begins. The maximum amount of expensed start-up expenditures would be reduced, but not below zero, by the amount by which start-up expenditures with respect to the active trade or business exceed $120,000.
10. For tax years beginning after December 31, 2013, expand the group of employers who are eligible for, and simplify, the tax credit available to small employers providing health insurance to employees to include employers with up to 50 full-time equivalent employees, and begin the phase-out at 20 full-time equivalent employees.
11. Tax certain “carried interest” (i.e., interest in future profits of a partnership) income as ordinary income instead of capital gains.
12. Increase certainty with respect to worker classification by permitting IRS to require prospective reclassification of workers who are currently misclassified and whose reclassification has been prohibited under current law.
13. Repeal the anti-churning rules for amortization of intangibles under Code §197.

Nardone Limited Comment: This is a significant proposal as it relates to the anti-churning rules. This relates to the current limitations on amortizing goodwill for a purchaser of a business. We will provide much more detail on this if this actually passes.

Nardone Limited, a Columbus, Ohio law firm, provides specialized tax and business planning services. Nardone Limited represents businesses in such diverse areas as: (i) buying and selling businesses, (ii) asset purchase agreements, (iii) employment contracts, (iv) labor and employment representation, (v) human resource representation, (vi) licensure representation, (vii) lease agreements, (viii) real estate purchase agreements, (ix) tax planning, and (x) estate planning. The staff at Nardone Limited strives to understand our client’s business, represent our client’s zealously, while minimizing the tax impact of each transaction. Whether your business is beginning, transitioning, or encountering adversity, Nardone Limited provides the necessary legal and tax planning guidance your business needs under the circumstances.  Contact
Nardone Limited today to discuss your Practice and how Nardone Limited may help you.