The 2012 tax filing deadline has just passed for business owners. For too many who filed the last minute came surprises at how their business did and the amount of tax that was due, I always felt that most people do not like surprises and that the best value I can provide as a CPA is to work with you during the year to help you understand your business better, to help you achieve a higher level of profitability, to avoid surprises, and to keep your taxes as low as possible.
The value of tax planning and consultation during the year exceeds many times the additional fees so many are reluctant to pay. Just think about how much more you could make by having a part-time financial consultant available during the year. This is priceless! In this article, I want to talk about how business owners can take advantage of a few of the tax laws that are available now that will at this point expire at the end of 2013. Making the right moves before the end of the tax year can save you and your business plenty in taxes. Let’s first take a look at taking advantage of two of the most beneficial tax laws that alone can save you thousands of dollars.
For 2013, firms can expense up to $500,000 of assets put in use during the year. The $500,000 limitation phases out dollar for dollar once more than $2,000,000 of assets are placed in service during the tax year. Both new and used assets are eligible for this break. Unless Congress acts, the ceiling for next year will decrease to around $145,000 and the phaseout will start around $580,000.
Take advantage of the higher limit now.
In addition to expensing, 50% bonus depreciation is set to expire after 2013. Firms using this break can write off one-half of the cost of new assets with useful lives of 20 years or less. Leasehold improvements made to the interiors of commercial realty are eligible, too. The other half of the cost is recovered via regular depreciation. With all the gridlock in Congress, this easing may not be revived for 2014, so put assets in use by Dec. 31.
Let’s look at how this can benefit you. If you put a new heavy SUV in use in 2013, you can deduct much of the cost. Say your business pays $60,000 for a new SUV with a loaded gross vehicle weight over 6,000 pounds and puts it in use in Sept. First, the firm can expense $25,000, the cap for SUVs. Half the remaining $35,000 cost…$17,500…is bonus depreciation. 20% of the $17,500 balance…$3,500…is normal depreciation. With 100% business use, the total first-year write-off is an amazing $46,000!.
Used SUVs do not get bonus depreciation. Pickup trucks with loaded weights over 6,000 pounds can be fully expensed, as long as the cargo bed is at least six feet long and is not accessible from the cab. For lighter vehicles, the maximum deduction in the first year is $11,160.
Business owners can shift income and expenses between 2013 and 2014. With tax rates not likely to change next year, it generally is better to defer income and accelerate deductions unless you expect to be in a higher tax bracket next year.
Delaying a year-end bonus for a majority owner won’t work if the amount is set in 2013 and the firm has the cash to pay it…the owner has constructive receipt of the bonus. Deductions for accrual method firms are limited. They can’t deduct in 2013 bonuses that are deferred to 2014 by owners of more than 50% of regular corporations or by owners of any interest in an S corporation, personal service firm or partnership.
For C Corporations, consider taking dividends in lieu of salary. This can pay if the corporation is in a low tax bracket and the owner is in a high bracket. The owner’s tax savings due to the special tax rates on dividends plus the payroll tax savings on the dividend can exceed the extra tax the corporation pays because the dividend isn’t deductible. This is so even if the owner owes the 3.8% Medicare tax on the dividend.
Adopted from the 8/30/13 Kiplinger Tax Letter