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Important Year-End Tax Planning Tips For Small Businesses

Businesses are running out of time to implement and act on year-end tax planning strategies. In addition, most companies have a few variables added to the mix this year. Mainly, the nineteen notable expired tax benefits from the prior year and those that are set to expire at the end of this year. How should your business prepare?

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The Section 179 and Bonus Depreciation deductions are not as generous as they were in 2013. Beginning in 2012 and 2013, the Section 179 deduction dollar limitation was $500,000, and the investment limitation was $2 million. For the 2014 tax year, the Section 179 dollar limit fell to $25,000. Even worse, bonus depreciation expired all together at the end of 2013. Businesses were able to write-off 50% of eligible expenses through the bonus depreciation provision.

The question now is whether or not these two tax provisions will be retroactively reinstated at 2013 levels for 2014. Congressional leaders seem to be in agreement as to the economic benefits for doing so. However, how exactly they will be reinstated is the sticking point as they are being packaged together with other more contentious tax provisions.

We do believe that Congress will reinstate these tax benefits before the end of the year or by early next year. We would recommend though that you wait as long as possible to make your year-end purchases.

What are the other business tax provisions that may be reinstated?
– Research and experimentation credit (Code Sec. 41);
– Work opportunity tax credit (Code Sec. 51, Code Sec. 52);
– Exceptions under Subpart F for active financing income (Code Sec. 953, Code Sec. 954);
– Look-through treatment of payments between controlled foreign corporations (Code Sec. 954(c)(6));
– Special treatment of certain dividends of regulated investment companies (RICs) (Code Sec. 871(k));
– Employer wage credit for activated military reservists (Code Sec. 45P);
– Special expensing rules for film and television production (Code Sec. 181(f));
– Special 100% gain exclusion for qualified small business stock (Code Sec. 1202);
– Reduction in S corp recognition period for built-in gains tax (Code Sec. 1374);
– Election to accelerate alternative minimum tax (AMT) credits (Code Sec. 168(k));
– Low-income housing 9% credit rate freeze (Code Sec. 42);
– Military basic allowances under low-income housing credit (Code Sec. 42, Code Sec. 142);
– 15-year straight line cost recovery for qualified property/improvements (Code Sec. 168(e)(3)(E));
– Deduction for domestic production activities in Puerto Rico (Code Sec. 199);
– Tax treatment of certain payments to controlling exempt organizations (Code Sec. 512);
– Accelerated depreciation for business property on Indian reservations (Code Sec. 168(j)); and
– Indian employment credit (Code Sec. 45A).

Managing income and expenses
Most businesses that are pass-through entities can easily manage their income and deductible expenditures through year-end. If your business is relatively stable or softening, consider deferring income into next year and accelerating deductible expenses into this year. Alternatively, if your business is flourishing and you expect to be in a higher tax bracket in 2015, accelerate income into 2014 and defer expenses to 2014. In this regard, more income will be taxed this year at lower rates than in 2015, when your tax bracket will be higher.

C Corporation tax liability management
If you own a closely held C corporation, you may want to pay bonuses and make profit-sharing contributions in 2014 if you have had a profitable year. Making these decisions now will help to reduce your corporate income tax. In addition, you may also avoid exceeding the $250,000 threshold that triggers a 20% accumulated earnings tax penalty.

More questions? Browse answers or ask business tax questions online.

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