— Steven M. Piascik, CPA, MT
Last month, I provided my year-end tax planning check-list for individuals. Now let’s focus on your businesses. Smart tax planning is critical as you look at ways to minimize taxes and increase income on your business entities this year. So before you get swept away in the holiday rush, consider these actions:
- Buy machinery and equipment before year’s end. But watch out for Mid-Quarter Convention. You may not get everything you are hoping. Consult with your CPA before you purchase any machinery or equipment.
- Section 179 Deprecation – Although the business property expensing option is greatly reduced in 2015 (unless retroactively changed by legislation in the next couple months like last year), you still can make expenditures that can get you thousands of dollars in current deductions that you wouldn’t otherwise get. For tax years beginning in 2015, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000. Stay tuned later this year to see if the $25,000 limit is greatly increased by Congress!
- Businesses may be able to take advantage of the “de minimis safe harbor election” (a.k.a. the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies. Qualifying items should be purchased before December 31. To qualify for the election, the cost of a unit of property cannot exceed $5,000 if the taxpayer has an applicable financial statement (AFS). If there’s no AFS, the unit property cost cannot exceed $500.
- If your business qualifies for the domestic production activities deduction (DPAD) for its 2015 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2015 W-2 income.
- To reduce 2015 taxable income, if you are a debtor, consider deferring a debt-cancellation event until 2016.
- To reduce 2015 taxable income, consider disposing of a passive activity in 2015 if this will allow you to deduct suspended passive activity losses.
- If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.
- A corporation (other than a “large” corporation) that anticipates a small net operating loss (NOL) for 2015 (and substantial net income in 2016) may find it worthwhile to accelerate just enough of its 2016 income (or to defer just enough of its 2015 deductions) to create a small amount of net income for 2015. This will permit the corporation to base its 2016 estimated tax installments on the relatively small amount of income shown on its 2015 return, rather than having to pay estimated taxes based on 100% of its much larger 2016 taxable income.
- And of course – A corporation should consider accelerating income in 2015 if it will be in a higher bracket in 2016.
- And of course – A corporation should consider deferring income until 2016 if it will be in a higher bracket in 2015. The corporation also should defer income if this will preserve its qualification for the small corporation AMT exemption for 2015.
These actions not only will help to minimize the tax liabilities in 2015 and beyond, but they also will help to generate long-term income that can help you to grow your business. Before implementing any strategies, be sure to consult with a qualified and experienced certified professional accountant (CPA) to discuss any actions you are considering.
As we enter the Beverly Hills holiday season, I wish you all a merry and prosperous year!