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Year-End Tax-Planning Moves for Businesses & Business Owners

 

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  1. Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2016, the expensing limit is $500,000 and the investment ceiling limit is $2,010,000. Expensing is generally available for most depreciable property (other than buildings), off-the-shelf computer software, and qualified real property-qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.
  2. Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. The bonus depreciation deduction is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the 50% first-year bonus write-off is available even if qualifying assets are in service for only a few days in 2016.
  3. If, in fact, rates are reduced in 2017, additional expensing in 2016 at the current higher rates offers an added benefit.  However, keep in mind that President-elect Trump has proposed allowing for 100% expensing of all asset acquisitions, with no limitation.  It is possible that you could get a greater bang for your business buck by holding off buying assets until 2017.  Your particular situation will need to be evaluated and there is no way of knowing by the end of this year whether this tax proposal will become law.
  4. Businesses may be able to take advantage of the “de minimis safe harbor election” to expense the costs of lower-cost assets and materials and supplies that may otherwise need to be capitalized. To qualify for the election, the cost of a unit of property can’t exceed $5,000 if you have an audited financial statement or $2,500 without an audited statement.
  5. A corporation should consider accelerating income from 2017 to 2016 if it will be in a higher bracket next year. Conversely, it should consider deferring income until 2017 if it will be in a higher bracket this year. Again, this strategy is more meaningful if President elect Trump’s current proposal to reduce the corporate rate to 15% becomes law.
  6. To reduce 2016 taxable income, consider disposing of a passive activity in 2016 if doing so will allow you to deduct suspended passive activity losses.
  7. If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

We also wanted to make you aware of filing date deadlines changes for Partnerships, Corporations, and Foreign Information Reports beginning with the 2016 tax year. The due date for filing calendar year partnership tax returns and issuing Schedule K-1 to partners has changed from April 15th to March 15th, which is the same date S-corporations are due. Calendar year C corporations filing deadline has changed from March 15th to April 15th. The annual foreign bank account reporting (FBAR) on Form FinCEN 114 was required to be completed on June 30 but now will be synchronized with the due date for filing individual income tax returns on April 15th.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.