The end of 2015 is quickly approaching! We want to remind you of a few fringe benefit reporting requirements before the end of the year and to inform you of a favorable change to the de minimis safe harbor election for capitalizing assets.
Prior to processing the fourth quarter payroll tax returns and preparing 2015 Form W-2s, you need to calculate taxable fringe benefits. These benefits should be added to wages for the year. Examples of a few of the more common benefits are personal tax preparation fees paid by the corporation or LLC, personal use of Company car, and group term life insurance coverage over $50,000.
S Corps have special rules for health insurance premiums paid on behalf of shareholders owning 2% or more of the stock. The premiums are required to be included in taxable wages but they are not subject to Social Security or Medicare. The shareholders may be able to deduct 100% of the health insurance premiums on their personal income tax return for 2015.
Similarly for LLCs, health insurance premiums paid on behalf of members are subject to income tax, but not self-employment tax. The members may be able to deduct 100% of the health insurance premiums on their personal income tax return for 2015.
Please remember that LLC members generally do not receive a W-2 reporting wages. Instead, most members are required to receive guaranteed payments. These are subject to self-employment tax on each member’s annual income tax return. Guaranteed payments are reported on each member’s Schedule K-1.
As you may recall, last year the IRS passed a law that allows taxpayers to expense amounts paid to acquire tangible property. For many taxpayers, the law allowed a safe harbor deduction up to $500 per item or per invoice. Effective January 1, 2016, the IRS increased this threshold from $500 to $2,500. Even though the law is technically effective next year, the IRS will provide audit protection for those that choose to use this increased threshold for 2015. Merry Christmas from the IRS!
If you have any questions about fringe benefits or the de minimis safe harbor election, please call us at (616) 458-1835.