TRAVERSE CITY — Small business owners may still have time to do last-minute planning before 2013 comes to an end.
And, they should plan their 2014 taxes knowing that many favorable tax provisions available in 2013 will no longer exist in 2014. Among the tax provisions that will cease at the end of this year are:
- Deductions of up to $500,000 for purchases of certain assets such as new equipment. The 2014 limit on such deductions is only $25,000.
- Bonus (additional) first-year depreciation for new assets or software placed in service.
As in the past, year-end planning for businesses can include managing the timing of their expenses. For example, if a business expects its 2014 tax bracket to be higher than 2013, and if it is on the “cash basis” method of accounting, it may want to defer (postpone) the payment of expenses until 2014 so as to reduce 2014 taxes. Conversely, a business wanting to reduce 2013 taxes could pay an expense by credit card and take a deduction for the 2013 tax year even if the credit card bill is paid in 2014.
A company facing a net loss in 2013 may want to accelerate its deductions in that year. If it needs cash fast and has taxable income in previous years, it can carry back the 2013 loss to a prior year and obtain a quick refund from the IRS.
Accrual-basis taxpayers (those not on the cash basis) can take a deduction in 2013 on bonuses to employees even if the bonuses are not paid until March 15, 2014. Certain requirements must be met for this deduction.
The IRS recently issued final taxpayer-friendly regulations, effective for tax years beginning on or after Jan. 1, 2014, regarding deduction and capitalization of expenditures for tangible property. Businesses should immediately review their capitalization policies if they have not already done so.
Although it may be too late to do much additional tax planning for 2013, it’s certainly not too late to begin organizing records to prepare the 2013 tax returns. For example, expenses of the business should be separated from personal expenses. Likewise, businesses should have supporting documentation for transactions, such as receipts for charitable contributions.
For more information or assistance with starting, managing, and growing your small business, contact Traverse City SCORE at 231-947-5075 or toll-free at 888-796-4913. Visit www.UpNorthScore.com to schedule a free and confidential appointment with a SCORE mentor.
Bob Aukerman is a volunteer SCORE mentor, a tax attorney, CPA, and Principal of TC Tax Law and CPA.