Small Business New Tax Laws: Everything You Need to Know for 2016

Updated: Jun 17, 2020

Small business ownership comes with numerous advantages, including the ability to work from home, control your own destiny and pursue your passions. That advantage usually doesn’t include tax season, which is one time when small business owners might regret their decisions to go out on their own. There is a lot to consider during tax season. Another key tax item to keep track of is critical tax law changes. Here are some of the important changes that will impact your tax filings for this past year and affect your finances in 2016:

Tax Bracket Changes

Because of adjustments for inflation, there have been slight changes to the income amounts for each tax bracket. These changes took effect for the 2015 tax year.

Here is a table of the federal corporate income tax rate.

For individual tax returns, you’ll be in the highest bracket (paying 39.6% income tax) if your adjusted gross income is more than:

  • $232,425 for married filing separately

  • $413,200 for single

  • $439,200 for head of household

  • $464,850 for married filing jointly

Tax Deduction Changes

The standard deduction amounts have gone up:

  • Single or married filing separately deduction is $6,300.

  • Head of household deduction is $9,250.

  • Married filing jointly or qualifying widow(er) deduction is $12,600.

  • The personal exemption is $4,000.

Interested in learning other small business tax deductions that you might be eligible for? In article three of this Tax Series we've compiled a list of key small business tax deductions.

Automotive Expenses

If you use your car for business, you can deduct the related operating expenses in one of two ways:

  1. Log and claim the business-use percentage of actual expenses for things such as repairs, tires, maintenance, gas, and oil.

  2. Take a standard rate per mile driven for business (excluding the cost of commuting).

In 2015, the rate you can claim for business use is 57.5 cents per mile, up from 56 cents last year.

If you own a fleet of more than four vehicles, you may not use the standard deduction.

Retirement Plan Contributions

For self-employed and small business owners, the maximum amount you can save in a SEP IRA or a solo 401(k) cannot exceed $53,000 for 2015.

Your employees will now be able to contribute up to $18,000 to their 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. For employees age 50 and older, the catch-up contribution limit is now $6,000, for a total contribution limit of $24,000.

Social Security Payroll Taxes

Earnings subject to the Social Security portion of the FICA (Federal Insurance Contributions Act) tax have increased from $117,000 to $118,500. If you have employees earning this much, you need to adjust your payroll system to account for the higher taxable maximum. If you haven’t already done so, notify any affected employees that more of their paychecks will be subject to FICA.

If you’re self-employed, remember that you’re responsible for the entire FICA tax rate of 15.3 percent (currently 12.4% for Social Security plus 2.9% for Medicare).

Virtual Currencies

If your business has been paid in Bitcoins or any other virtual currencies, the income is taxable even though they weren’t considered “legal tender” for the 2015 tax year. That means that income taxes, payroll taxes, and capital gains taxes all apply even if you were paid in virtual currency. In some cases, the math gets a little complicated and you may want to consult with an expert to work out how best to account for your virtual currency transactions.

Tax Return Due Date Changes For Next Year

As part of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Congress changed the filing dates for several entities for tax years starting after December 31, 2015. It also extended the audit period from 3 years to 6 years in certain cases. Starting this year:

  • Personal returns will still be due April 15.

  • Partnership returns will be due March 15; they used to be due April 15. If your partnership doesn’t use a calendar year, returns will be due on the 15th day of the 3rd month after the end of your fiscal year.

  • C Corporation returns will be due April 15; they used to be due March 15. If your corporation doesn’t use a calendar year, returns will be due on the 15th day of the 4th month after the end of your fiscal year. However, the returns of corporations with fiscal years ending on June 30 will continue to be due by September 15 until 2025, after which the date will be pushed back to October 15.

  • S Corporation returns will still be due March 15.

These changes won’t affect this year’s filing dates, but you should be aware of the changes going into next year.

State e-Filing Laws

An increasing number of states now require e-filing for sales taxes, especially for companies that have a larger tax liability. Make sure you know the payment options and requirements for each state in which your company does business. For the most up to date information, the IRS has links to all the individual state websites.

Other State Tax Law Changes

Many states have instituted changes effective January 1, 2016. Some of these may not impact your filing for 2015, but you need to be aware of them going forward. The Tax Foundation has a rundown of the new regulations affecting both individuals and businesses.

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