At the end of every year, it seems we are anxiously waiting for Congress to enact extensions to popular business tax breaks. In 2014, the extenders were passed in December and in 2013, they waited until January 2014. This makes tax planning a bit more challenging. A few of the most popular and impacting tax breaks for small businesses are:
- 50% bonus first-year depreciation for most new machinery, equipment and software
- $500,000 annual expensing limitation for section 179 (only $25,000 if not extended)
Research tax credit:
- 15- year write-off for all qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
With these tax breaks up in the air, there are still other ways that you can make smart year-end decisions to help minimize your taxes.
- Cash-method businesses should consider delaying the sending of late-in-the-year invoices so payment is not received until 2016.
- Accrual-method businesses should hold off on providing goods or services to customers until after January 1st. Accelerate and Maximize Deductions:
- Identify purchase and money that can be spent on deductible expense, such as equipment repair, this year instead of waiting until 2016.
- Cash-method business should consider paying bonuses before year end.
- Accrual-method businesses can deduct bonus payments made to unrelated employees within 2 ½ months of year-end.
- Small businesses should look to harvest losses, check availability of deductions for bad debts, casualty, and theft losses as well as losses on the sale of business assets.
Safe Harbor for Repairs:
- Small businesses (average gross receipts of $10 million or less) can take advantage of safe harbor for repairs, maintenance, or improvements to eligible buildings and deduct their costs if they do not exceed the lesser of $10,000 or 2% of the building’s unadjusted basis.
- If you work from home, you may be entitled to claim a deduction for various expenses related to the business use of your home, such as utilities, maintenance, and insurance. The two options for this deduction are:
- Use actual expenses prorated for the portion of your home devoted to the home office.
- Deduct a standard rate of $5 per square foot for the office space (up to a maximum of 300 square feet).
- S Corporation shareholders who anticipate a loss to them this year should ensure that they have sufficient basis to deduct the losses. If they do not, they should consider making a loan to the S Corporation to increase their basis.
Domestic Production Activities:
- If your business qualifies for the domestic production activities deduction for the 2015 tax year, consider whether the 50% of W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2015 W-2 income (e.g. by bonuses to owner-shareholders whose compensation is allocable to the domestic production gross receipts.)
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