The tax law changes in 2013 for small business owners aren’t as monumental as those for individual taxpayers
Alert: There are still plenty of tax-saving opportunities for businesses at the end of the year. In fact, you might take advantage of several generous provisions included in the new American Taxpayer Relief Act (ATRA). Here are five popular tax strategies you may employ at the end of 2013.
1 Load up on business equipment.
Under ATRA, your maximum Section 179 deduction for qualified business property placed in service in 2013 is the lesser of a whopping $500,000 or the taxable income from your business. The $500,000 deduction begins to phase out on a dollar-for-dollar basis above a threshold of $2 million. However, the maximum dollar amount is scheduled to plummet to $25,000 in 2014, with a $200,000 phase out threshold. So buy new equipment and start using it before the end of the year.
2 Get greedy about depreciation.
The tax breaks for buying business property don’t stop there. ATRA also reinstates the 50% “bonus depreciation” deduction for qualified business property, in addition to any available Section 179 deduction and regular depreciation deduction. For instance, your Section 179 deduction might otherwise be limited by your taxable income. As with the higher Section 179 deduction, bonus depreciation generally ends after 2013, if not extended again by Congress. Best advice: Take advantage of this provision while you can.
3 Kick-start a new business. If you’re embarking on a new business venture, you may choose to deduct up to $5,000 of your qualified start-up expenses this year. Any excess is amortized over 180 months. Start-up expenses include costs that would normally be deductible by an ongoing business entity. It’s important to make sure you’re actually “open for business” before 2014. To qualify for the fast write-off, you must officially begin operations in 2013.
4 Salvage deductions for bad debts. In the current economic environment, you may have trouble collecting payment for products you’ve distributed or services you have performed. At least you can deduct worthless business receivables if (a) you included the receivables in taxable income under the accrual method of accounting and (b) you’ve made good-faith efforts to collect the past due amounts. Remember to keep detailed records of all your collection activities. This documentation might be needed to support claims of worthlessness if the IRS challenges the deductions.
5 Be a fixer-upper. Generally, minor repairs made to your business building—like fixing a leaky faucet or replacing a broken window—are currently deductible. In contrast, the cost of capital improvements, such as adding a new wing to the building, are added to the basis and written off over time via depreciation deductions. The IRS released new regulations in 2013 clarifying the differences. When it’s sensible, make minor repairs at year-end to increase your current deduction.
Caution: The IRS may say that repairs should be lumped in with a capital improvement cost if substantial work is done on the property at the same time.
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