Some big-dollar tax deductions that affect businesses are set to expire in 2013, so now’s the time to make sure your company considers taking advantage of them for the current tax year. Doing so may allow you to buy more equipment, send less to the IRS, or both.
Here’s a rundown on some moves to consider:
Section 179 deduction: “Under the Section 179 deduction, businesses can write off dollar-for-dollar their equipment purchases,” with certain limits. A business could buy a new truck, new machinery, or new servers and deduct the first $500,000 in costs for the 2013 tax year.
Without an extension by Congress, the allowed first-year deduction drops to $25,000 in 2014.
–Example, if you were to order some new servers and you ordered them December 30 and installed them after January 5, technically, they don’t qualify for the deduction in 2013. Purchases exceeding $2 million start to lose that first-year deduction of $500,000. Items would need to be purchased and placed into service by December 31st.
Real estate purchases aren’t covered by the Section 179 deduction, but if you’re a tenant and you’re making certain leasehold improvements, you might be able to write off up to $250,000 of those expenses.
First-year bonus depreciation: Larger companies that spend more than $2 million on capital equipment should look into the “first-year bonus depreciation” allowed in 2013 but set to expire. Under that rule, brand new equipment can qualify for a write-off of 50 percent, with no limits, so $5 million of a $10 million purchase could be expensed.
R&D tax credit: Another tax-related item set to expire in 2013 is the tax credit for research and development. It has been extended numerous times over the years, and it’s one that tends to get extended, sometimes retroactively. Despite the high-tech-sounding name, this credit is not for tech companies alone. Many businesses that might qualify for this tax credit aren’t aware that they qualify. Check with your tax advisor on the specifics of your situation
Another planning issue that small businesses should be looking at if they haven’t already this year is their business structure. The impact of new taxes for 2013 that are part of the Affordable Care Act (including a 3.8 percent tax on net investment income, which can affect investors in a business, and a 0.9 percent tax on earned income) can be reduced if your business is structured as an S-Corp.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT AY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.