The House of Representatives voted in favor of passing a slew of notable small business tax benefits that expired at the end of last year. The Senate and President Obama have yet to approve the proposed tax legislation, but all indications are that they will follow the House’s lead. This should be welcoming news for businesses that have waited for confirmation before moving forward on 2014 capital purchases. Which tax breaks are likely to be reinstated?
The Section 179 Election & Bonus Depreciation
The maximum Section 179 deduction is likely to return to $500,000 from its current $25,000 level. What’s more, the bonus depreciation deduction, which expired all together in 2014, should be reinstated to 50% of the cost of eligible property.
As a refresher, the Section 179 deduction applies to the purchase of new and used property, while bonus depreciation is only applicable to new purchases. Furthermore, a business must carry-forward a Section 179 deduction in excess of a net operating loss, whereas bonus depreciation may still be deducted in the current year.
Other provisions that are likely to 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).
Planning for the 2015 tax year
While it is highly probable that lawmakers will reinstate the small business tax extenders for 2014, it’s also equally as likely that Congress will kick the can down the road as it relates to 2015 tax breaks. We may very well be in the same situation next December. Thus, businesses will likely have to wait it out again in terms of tax planning for 2015 purchases.
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.
Related Articles
->Important Year-End Tax Planning Tips For Small Businesses
->Report: The Sales Taxman Cometh, Beware Accountants And Clients
->Is Your Small Business Getting Enough Value From Your CPA?
->Preparing For Rising Business Costs In 2015
->Should We Use QuickBooks Online Or Xero For Bookkeeping?
->Tax Deductions For The Self Employed
->Small Businesses Should Take Note Of The R&D Tax Credit
