In case you missed it, please read our recent tax planning articles, Tax planning 2014: If and When Congress Decides to Act and Tax Planning 2014: 15 Tax Planning Strategies for Individuals.
This week will focus on the top ten tax planning strategies for business and business owners. Not all of these strategies will apply to your particular set of circumstances. To determine which strategies are best for your business, call Randy Smith to arrange for a tax planning strategy meeting.
- Make equipment expenditures. If you need machinery or equipment, consider buying it before year end. At a minimum, under the generally applicable “half-year convention,” you will secure a half-year’s worth of depreciation deductions for the first ownership year. Although the business property expensing option is greatly reduced in 2014, don’t neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000. That said, if Congress extends the bonus depreciation, it will most likely be retroactive which greatly increases the benefit.
- Expense the costs of inexpensive assets. Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies, assuming the costs don’t have to be capitalized under the Code Sec. 263Auniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property can’t exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA’s report). If there’s no AFS, the cost of a unit of property can’t exceed $500. Where the UNICAP rules aren’t an issue, purchase such qualifying items before the end of 2014.
- Accelerate or defer income. A corporation should consider accelerating income from 2015 to 2014 where doing so will prevent the corporation from moving into a higher bracket next year. Conversely, it should consider deferring income until 2015 where doing so will prevent the corporation from moving into a higher bracket this year.
- Preserve corporation AMT. A corporation should consider deferring income until next year if doing so will preserve the corporation’s qualification for the small corporation alternative minimum tax (AMT) exemption for 2014. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn’t qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.
- Show a small profit. A C-corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.
- Keep domestic production activities in mind. If your business qualifies for the domestic production activities deduction for its 2014 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2014 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2014, even if the business has a fiscal year.
- Defer debt-cancellation. To reduce 2014 taxable income, consider deferring a debt-cancellation event until 2015.
- Dispose of passive activity. To reduce 2014 taxable income, consider disposing of a passive activity in 2014 if doing so will allow you to deduct suspended passive activity losses.
- Consider increasing your basis. If you own an interest in a partnership or S corporation consider whether you need to increase your basis in the entity by putting money in so you can deduct a loss from it for this year.
- Purchase a large vehicle for work-use. Business-related purchases of new or used vehicles weighing 6,000-14,000 pounds may be eligible for Section 179 expensing, which allows you to expense, rather than depreciate over a period of years, some or all of the vehicle’s cost. This is applicable only if the vehicle is used more than 50% in a qualified business use – which does not include commuting.
These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you. We also will need to stay in close touch in the event Congress revives expired tax breaks, to assure that you don’t miss out on any resuscitated tax saving opportunities.