November 15, 2014
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. Additionally, be aware that equipment needs to be in-service to be eligible for depreciation, so waiting on items like fermenters and brite tanks may not be feasible.
- Fix up the office or plant. Generally, expenses for minor repairs that you make to the business premises—for example, replacing hoses or repairing pallet jacks—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.
- Take advantage of the Domestic Production Activities Deduction (DPAD). This deduction is available to reduce federal taxable income for domestic manufacturing companies. Breweries are eligible for this deduction. Note: If you have a tasting room or restaurant, those sales and expenses and the square footage allocated to those activities may be excluded for purposes of calculating the DPAD deduction. Be sure to keep good records for your revenues and expenses related to your production activities.
- Consider electing to accelerate certain prepaid expenses, if you haven’t already. Typically up to 12 month prepayment for non-goods and services items can be expensed in the period they are paid for tax purposes. Examples are insurance, property taxes, or Brewers Guild dues. If you have already made this election and there are any of these types of expenses approaching, paying them before year end will help reduce taxable income.
- 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. Remember, this increased deduction is subject to the current Section 179 limitations noted above.
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.