Looking back over 2014, many business owners saw a welcomed uptick in sales and growth. This growth has important tax consequences and business owners should now take time to review their year-end tax planning. For many business owners, this is a routine project. Others may have done some year-end planning in past years but not in recent years. Year-end tax planning presents the opportunity to explore situations that could maximize tax savings and should not be overlooked. This communication explores some of the year-end planning considerations that affect businesses in general. Of course, every business is unique. Our office can review your business and together we can design a year-end tax strategy.
Utilizing Expensing and Bonus Depreciation
Many business owners are familiar with the benefits of Code Sec. 179 expensing and bonus depreciation. For tax years beginning in 2012 and 2013, the Code Sec. 179 dollar limitation was $500,000 (indexed for inflation) and the investment limitation was $2 million (indexed for inflation). The enhanced amounts expired after 2013 and are set to revert back to $25,000. It is uncertain if these enhancements will be extended by Congress.
Similarly, bonus depreciation has generally expired under current law. Bonus depreciation applied to qualified property acquired after December 31, 2007 and placed in service before January 1, 2014. Bonus depreciation could be extended for two years (with retroactive application for 2014). If bonus depreciation is extended, a 50 percent bonus depreciation allowance is the most likely percentage.
Uncertainty over the ultimate fate of enhanced Code Sec. 179 expensing and bonus depreciation impacts 2014 year-end planning, particularly as business owners contemplate purchases of equipment and supplies. Businesses considering qualified purchases need to weigh the benefits of making these purchases before year-end or postponing these purchases after 2014. Because enhanced Code Sec. 179 expensing and bonus depreciation have not been extended, it is uncertain if businesses will be able to take advantage of these incentives in 2014 and 2015.
Planning with Expired Business Tax Breaks
Every two years, many temporary business tax breaks come up for renewal and 2014 is no exception. The extension of many of these incentives in the American Taxpayer Relief Act of 2012 (ATRA) have expired. The research tax credit, the credit for employer-provided child care facilities and services, and others expired after December 31, 2014. Like enhanced Code Sec. 179 expensing and bonus depreciation, it appears that taxpayers will not know the fate of these incentives until late in 2014 or in early 2015. Congress could, as it has in the past, renew these incentives in a comprehensive bill or it could proceed piecemeal.
Along with the business incentives highlighted above, other business tax breaks also expired after 2013, including:
• Work Opportunity Tax Credit
• Employer wage credit for activated military reservists
• Credit for new energy efficient homes
• 15-year straight line recovery for qualified leasehold improvements
• 15-year straight line recovery for qualified restaurant property
• 15-year straight line recovery for qualified retail improvements
The expired tax breaks affect a wide variety of businesses. Businesses may have utilized one or more of the expired tax incentives in past years. Some past strategies may continue to be valuable. Our office can help ascertain the effectiveness of these strategies at year-end 2014.