Five Year-End Moves for a Small Business
Year-end tax planning is not restricted to individual taxpayers. Some astute moves by the owners or managers of a small business can also shave dollars off your tax bill.
As it does with individual tax planning, uncertainty exists, but here are five practical ideas to consider in any event.
Wait and see on equipment purchases. Unless Congress takes action, the maximum Section 179 allowance for qualified property placed in service remains at just $25,000 for 2014, as opposed to $500,000 last year. Also, the special “bonus depreciation” tax break generally expired after 2013. The upshot: Keep one eye on your purchases and the other on the tax law. If the limit remains at $25,000, you might stay close to that level. And, if Congress approves an increase, be ready to pounce. Note: If new equipment is needed, you are still eligible for regular depreciation deductions over time.
Fix up the office or plant. Generally, expenses for minor repairs that you make to the business premises—for example, replacing a broken window—are currently deductible. Conversely, the cost of a capital improvement is added to your basis in the property. When possible, take care of repairs before year-end. Note that new regulations issued last year address several complex issues in this area. Current deductions may be available under a special safe harbor election. Contact your professional tax adviser for more information.
Salvage bad debt deductions. If you are not paid for amounts owed to your business, at least you may be able to salvage a deduction for debts that are “worthless.” But you must show that you’ve made good-faith efforts to collect the debts. To secure a deduction for 2014, step up your collection activities before the end of the year. Remember to keep detailed records—including correspondence and e-mails to debtors—of your efforts.
Start a new venture. Under a special tax law provision, you may be able to deduct up to $5,000 of qualified start-up expenses of a new business. Any excess must be amortized over 180 months. To qualify for the current tax write-off, the operation must be an ongoing activity, so make sure the doors are officially “open for business” before the end of the year.
Buy an SUV for business driving. Normally, if you buy a vehicle in 2014 and use it for business driving, your first-year depreciation deduction is strictly limited by the “luxury car” rules. However, these rules do not apply to certain heavy-duty vehicles, including sports utility vehicles (SUVs), weighing more than 6,000 pounds. Instead, your deduction is capped at a generous $25,000. If you are in the market for a new vehicle, weigh this option.
Of course, this is just a brief overview of five year-end tax-planning ideas. You may use a combination of these or other ideas. Obtain guidance as to how to plan for your particular situation.