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.