Year-End Tax Planning: Soar Above Partisan Politics
The Republicans have retaken control of the Senate and expanded their majority in the House of Representative following the recent mid-term elections. So, how does this change of leadership affect tax reform in the United States?
Both the Republicans and Democrats are working to overhaul a tax code that is bloated and confusing for many businesspeople and regular citizens alike. A spending bill is also in the works in both houses. At the same time, businesses around the country are eagerly anticipating an extension of certain tax benefits.
This package could involve extending perks like bonus depreciation as well as credits for research and development across an array of fields. Businesses are looking forward to these extensions partly because these benefits will affect 2015 tax filings. To make matters more convoluted, though, the extension of these benefits could complicate comprehensive tax reform in the coming years.
Bonus plan limitations as well as offering an alternative minimum tax (AMT) are pivotal considerations as Congress mulls over plans to extend these benefits to businesses. For all of those businesses negotiating year-end tax planning, bearing in mind permanent benefits like delayed debt forgiveness and declared special dividends is extremely important. It may also be helpful to decide whether to pay all of your bills in 2014 or delay payments until 2015.
Auditing and possibly altering any accounting method changes before 2014 comes to a close might be an important step to take before the new year brings further extensions and tax reform. Make sure to carefully scrutinize bonus depreciation as well as bonus plan limitations and passive shareholder involvement. With respect to passive shareholder involvement, make an extensive log of hours to get the best return for your time and energy.
Bonus Depreciation and Year-End Review
It’s crucial to note that bonus depreciation expired for all industries except for the non-commercial aircraft sector. Bonus depreciation effectively expired in 2013. The latest legislation features an ex-post-facto bonus depreciation provision once a business tax return is filed. All taxpayers are expected to send in a return statement electing to forgo the accelerated depreciation system in lieu of amending their tax returns.
You should take the steps listed above if you’re feeling especially uncertain about future legislative action.
If your taxable income is likely to be negative, then taking the aforementioned steps might also be a wise move. Lastly, if your net operating loss will not materialize until sometime in the far-off future, then there might be more benefits for you vis-a-vis ameliorating the depreciation deductions over a longer time frame. A return filed prior to a finalization of legislation could obviously be changed to encapsulate any additional expensing.
Year-end review might be a good option if a client of yours plans on taking on bonus payments this year and making those bonus payments at the start of 2015. Checking determinable and fixed rules, and whether you’ve met those or not, is essential.
All year-end tax planning should include considerations of the alternative minimum tax. If you fail to factor in the alternative minimum tax into your year-end tax planning, then making an appeal later could hurt you. It’s often the case that alternative minimum tax considerations fail to fully materialize until after the return is set up.
You also shouldn’t forget about permanent benefits like Section 199. Taxpayers and tax specialists who look forward to positive taxable income in 2014 should realize that Section 199 offers tremendous benefits to clients.
Section 199 and IC-DISC
Section 199 is offered to manufacturers in the United States. This benefit features a deduction of nine percent vis-a-vis the lesser of taxable income or qualified production activities income. Whereas the bonus depreciation benefit reverses and fails to offer actual cash savings, Section 199 stays constant and offers a cash benefit.
Section 199 might still be applicable to certain manufacturers who have component parts created in the United States. In other words, one part could be produced exogenous to the U.S. and another part could come from a U.S. manufacturer and Section 199 would still be implicated.
For those currently planning to get the Section 199 deduction, IC-DISC is another permanent benefit that could be obtainable. The interest charge domestic international sale corporation (IC-DISC) cannot be applied after the fact, so the IC-DISC might not be applicable for 2014 filing. Exports for 2015 can receive a benefit as long as this plan is actualized at the beginning of the year.
Although comprehensive tax reform is an increasingly looming issue in the background of partisan politics, there are ample chances to actualize the changes listed above right now. A consciousness of the tax code, deductions and benefits can help you sidestep dead-ends and bring value with staying power.
Quick Tax Filing Tip for Small Businesses
Tax season is always a critical time of year for businesses. Regardless of your filing method, e-filing is a smart option because of the time efficiency, the paper reduction, and the simplicity of record-keeping.
There are countless e-file solutions out there. If you’re using someone outside of your office make sure they choose a reliable platform for their e-filing. If doing your taxes in-house, search for an efficient way to prepare all the forms and deliver them to employees and contractors. If you need to file 1099 forms online, one of the industry leaders is eFile4Biz.
They simplify the process. They will file 1099 online for you, as well as print and deliver the paper copies to recipients. Check them out this season.