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December 12, 2014

4 year-end tax planning opportunities for business owners

Businesses that are looking to reduce their 2014 tax liabilities only have a little more than two weeks left in the year to act.

In between the holiday parties, gift wrapping and making 2015 resolutions, business owners should take heed of the following year-end tax planning opportunities.

1.       Focus on tangible property regulations

All businesses should be focused on the new tangible property regulations, which deal with whether certain expenditures can be expensed or must be capitalized.

To take advantage of the tangible property regulations, review depreciation records for assets that have been capitalized over the last several years, which potentially can be written off under the new rules.  Keep in mind that businesses must comply with the new regulations in 2014, and you will most likely need to make some elections and complete some special forms in 2014 returns in order to do so. The challenge in putting this off until next year is the possibility  of running out of time to fully consider the new rules. By taking care of this now, businesses may be able to capture more benefits that reduce the tax impact on cash flow.

There’s value in these new rules because, in addition to using processes correcting depreciation errors in the past, and taking advantage of expanded  de minimis safe harbor rules allowing more write-offs,  businesses actually have the opportunity to make what is known as a late partial asset disposition election. Businesses may be able to write off a building component that was capitalized years ago if they have renovated the building or replaced the building component. In the past, that wasn’t available.

2.       Upgrade assets

By upgrading assets in December, businesses can realize some additional depreciation deductions, or possibly deduct the entire asset using the expensing election.

Is there a new machine your business is planning to buy anyway? If so, purchase it and place it in service by year-end and you may be able to capture some depreciation or write-offs for 2014.

3.       Pay executive bonus accruals

Recently, the IRS has tightened up on the ability to deduct year-end bonus accruals, so taxpayers should review their executive bonus programs to make sure such accruals qualify for current deductions.

Many business owners assume that they can deduct accrued bonuses as long as they are paid out by March 15th of the following year.  A lot of businesses fail to realize that the bonus must be a fixed liability, which means it cannot be contingent on any occurrence after year-end.

For example, assume you have a bonus pool accrual of $100,000 at year-end and intend to pay it by March 15.  If you conduct employee reviews in January, and the bonuses are contingent upon successful performance evaluations, the entire bonus pool may be nondeductible until paid.  However, if when someone doesn’t meet their performance metrics, you reallocate their bonus to other employees, you potentially can still deduct that $100,000 bonus pool as of the prior year-end.

4.       Keep an eye on Congress

As you may have seen in the news, Congress is currently debating what to do with extenders, which are tax benefits that expired at the end of 2013. As of the drafting of this post, Congress has yet to act. However, that doesn’t mean our lawmakers won’t come to a decision this year.

In order to capitalize on a potential extender package – which may include bonus depreciation, expanded  expensing for acquired assets and the R&D tax credit – business owners should monitor the legislative process with their tax advisors for the rest of the month.

Even though the end of the year is rapidly approaching, there is absolutely still time to improve your business’ tax situation. Make sure you contact your tax advisor and take a close look at potential deductions and tax savings opportunities before we ring in 2015.

For additional information and opportunities, be sure to check out our 2014-2015 tax planning guide.


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