We are getting towards the end of the year and now is the time to review tax plans for any updates we should make, project the 2013 taxes, and implement 2014 tax plans. Tax planning is a challenge this year. There are many tax provisions expiring or changing this year which will effect your small business. However, there are still some opportunities to reduce your taxes before the end of 2013.
Section 179 Expensing Drops
One of the biggest deductions available to all businesses will be dramatically reduced in 2014. This is the last year for expensing up to $500,000 of Section 179 property. As of Jan. 1, 2014, the Section 179 property-expensing limit is scheduled to drop to $25,000, phasing out after $200,000 of total purchased equipment
Bonus Depreciation Deduction Expires
The bonus depreciation deduction applies to qualified property acquired and placed in service before Jan. 1, 2014. The bonus deduction can be taken on the adjusted cost basis of the property after any Section 179 expensing. To qualify for bonus depreciation, the property must be new, acquired during 2013 and placed in service during 2013.
Shorter Recovery Period for Improvement & Properties Expires
For qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service in 2013, a 15-year recovery period applies rather than the normal 39-year recovery period used for nonresidential real property. That shorter recovery period is not available for property placed in service after 2013. Instead, the 39-year recovery period will apply.
New Capitalization Rules
In September, the IRS issued final capitalization regulations that affect all businesses that acquire, produce, or improve tangible property (buildings and equipment). Most businesses are affected by these rules. The regulations apply to tax years beginning on or after January 1, 2014. However, taxpayers can adopt the final regulations for tax years beginning on or after January 1, 2012. Adoption of these rules beginning in 2012 could result in significant refunds. The biggest changes are for businesses that own buildings. Compliance with the new rules will cost taxpayers more money in accounting fees due to the detail required to be kept to comply with the new rules but for some, will result in some large tax savings opportunities.
Change in Disposition Rules for MACRS Assets
Also in September, the IRS issued proposed regulations on dispositions of assets, which are expected to be finalized later this year and which will be effective for tax years beginning on or after January 1, 2014. Like the capitalization regulations, these rules affect almost all taxpayers. Once the proposed regulations are finalized, they will replace temporary regulations, which taxpayers may choose to apply to tax years beginning on or after January 1, 2012.
Affordable Care Act
Your small business may be eligible for a credit for contributions to purchase health insurance for employees. The amount of the credit increases from 35 percent (25 percent for tax-exempt organizations) of eligible premium payments in 2013 to 50 percent (35 percent for tax-exempt organizations) in 2014. You must also report the cost of employer-sponsored group health plan coverage on employee W-2s.
Additional 3.8% Tax on "Net Investment Income" Took effect in 2013
Net investment income includes interest, dividends, annuities, royalties, rents, and other passive activity income. Net investment income does not include the sale or disposition of an interest in a partnership or S Corporation as long as you were actively involved in the business. Net investment income also excludes active income from a trade or business, distributions from qualified retirement plans, and income exempt from tax, such as interest from municipal bonds. The threshold amount is $200,000 for single, $250,000 for married filing jointly, or $125,000 for married filing separately.
Increased Tax on Dividends to Owners
If you have what we refer to as a "C corp", there is a big change that impacts our tax planning this year. Dividend now are taxed at a higher tax rate (20 percent for taxpayers with income taxed at the 39.6 percent rate), as well as the 3.8 percent net investment income tax on such dividends from the Affordable Care Act, if certain thresholds are exceeded. The threshold amounts are $200,000, $250,000 if married filing jointly, or $125,000 for married filing separately.
November and December are the months for tax planning at Fisher CPA Firm. For the clients that are signed up for tax planning, we will be contacting you as we complete your projections and your tax plan. If you have not signed up for tax planning services, please give me a call and we can get you started right away. If you are wondering if you should get our tax planning services, please give me a call and we will discuss your situation.