Take Advantage of Those Expiring Tax Breaks


By Dennis Mowrey

Tax legislation passed and signed into law in January, 2013 made a wide variety of tax breaks permanent, and also extended several valuable tax breaks until December 31, 2013, but now as year-end draws closer, what is the status of tax reform? Without a crystal ball to predict what will happen over the next several months, here are some tax strategies that may be worth looking over.

Bonus Depreciation
Many businesses may benefit from purchasing assets by December 31 to take advantage of depreciation-related deductions that are scheduled to either become less favorable or will disappear in 2014. For qualified assets acquired and placed in service through December 31, 2013, this additional first-year depreciation is generally 50%. The assets that will qualify are new tangible property with a recovery period of 20 years or less and off-the-shelf computer software. Bonus depreciation is currently not scheduled to be renewed for 2014.

Section 179 Expensing
This allows a 100% deduction for the cost of acquiring qualified new or used assets. For 2013, expensing is subject to an annual limit of $500,000, and this limit is phased-out dollar for dollar if purchases exceed $2 million for the year (so that larger business may not benefit). The Section 179 expensing can’t reduce net income below zero (so this eliminates businesses that are having a bad year or who are trying to create or increase a net operating loss for tax purposes). For 2014, the expensing and asset purchase limits are scheduled to drop to $25,000 and $200,000, respectively.

Breaks for Leasehold Improvement, Restaurant and Retail Improvement Property
For 2013, first-year depreciation allowance for qualifying leasehold improvements is 50% (this will expire 12/31/13). Current use of Section 179 election to deduct up to $250,000 of qualified leasehold improvement, restaurant and retail will also expire at the end of the year. A shortened recovery period on accelerated depreciation of 15 years rather than 39 years can be applied for 2013 to qualified leasehold improvement, restaurant and retail improvement. This will also expire at the end of December, 2013.

Research and Development Credits
The research tax credit is for increases in a wide variety of research activities, not just laboratory experiments. Wages for researchers, the cost of research supplies and the cost of computer licensing for research projects are among the expenses that may qualify. This credit is scheduled to expire at December 31.

Now is the time to do some tax planning and to decide what spending and deductions should be taken now versus taken in 2014. Good tax planning is a good sign of good management.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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