As the end of 2013 approaches, it’s time to think about what can be done to minimize the amount of taxes paid to the IRS by your business. Although tax planning should be a year-round process, there are several year-end strategies that can be put into place now to reduce future tax liability.
Here are some 2013 tax planning considerations for your business:
- Businesses should consider making expenditures that qualify for the business property expensing option. For the tax year beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. Please note that a limited amount of expensing may be claimed for qualified real property. Unless Congress changes the rules, for tax years beginning in 2014, the dollar limit will drop to $25,000, the beginning of the phaseout amount will drop to $200,000, and expensing won’t be available for real property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most, if not all, of their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.
- Businesses should consider making expenditures that qualify for 50% bonus first year depreciation, if bought and placed in service this year. This bonus write-off generally won’t be available next year, unless Congress acts to extend it. Businesses planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.
- Make qualified research expenses before the end of 2013 to claim a research credit which won’t be available after 2013, unless Congress extends the credit. The research tax credit provides companies with a tax credit based on a company’s investment in technology and employment within the United States.
- If you are self-employed and haven’t done so, set up a self-employed retirement plan. Put the maximum allowable amount into the plan.
- Tax rates should be consistent in 2014 with what they are in 2013 (albeit with some inflation factor). If you expect your income and marginal tax rate to decline in 2014, consider possible ways to defer some of your 2013 taxable income to 2014, or accelerate some of your expenses from 2014 to 2013. Utilize the opposite strategy if you anticipate your 2014 income to be significantly higher than it is in 2013. This should lower your effective tax rate on this income.
- Maximize the 0% capital gains tax rate. Married couples with income below $72,500 will pay no federal income tax on capital gains. If you do not expect to have taxable income in 2013, consider taking some of your capital gains in the current year as you should escape paying federal income taxes on this gain.
- Depending on the particular situation, businesses may want to consider deferring a debt-cancellation event until 2014, and disposing of a passive activity to allow the deduction of suspended losses.
These are some of the year-end strategies that can be enacted to reduce your tax liability.
Please contact Jamie Downey at 800.849.6022 or JMDowney@DowneyCoCPA.com, if you have any questions.
