Over the years, various stimulus acts have aimed to spur business investment, by increasing the Section 179 property-expensing deduction. These laws allow a business to deduct, for the current tax year, the full purchase price of financed or leased equipment and off-the-shelf software that qualifies for the deduction, rather than utilize the standard depreciation schedule. The American Taxpayer Relief Act of 2012 extended the increased Section 179 deduction through the end of 2013.
Businesses can deduct up to $500,000 of the cost of qualified property, with the total amount of equipment purchased not exceeding $2,000,000. Businesses have a very narrow window to make purchases. As of Jan. 1, 2014, the Section 179 property-expensing limit is scheduled to drop to $25,000, phasing out after $200,000 of total purchased equipment. Business owners should take note that qualified property can be both new and used, as long as the used equipment is “new to you.”
The 2012 Tax act also extended 50 percent first-year bonus depreciation, so it applies to qualified property acquired and placed in service before Jan. 1, 2014. The bonus deduction can be taken on the adjusted cost basis of the property after any Section 179 expensing. To qualify for bonus depreciation, the property must be new, acquired during 2013 and placed in service during 2013.
If your business is in the position to hire before year-end, the business may be eligible for the Work Opportunity Tax Credit for hiring certain workers before Jan. 1, 2014. Employers may want to consider hiring a qualified veteran who risked his life for our country. Businesses may also qualify for a credit up to $2,400 for new-hires from eight other targeted groups who have had trouble gaining employment.
Small businesses who use cash-method accounting may be able to defer income until next year. Business owners can plan now to time year-end invoices for late December, so that the business should receive payments in January 2014. Businesses with accrual-method accounting may be able to delay shipping products or providing services, until the beginning of your 2014 tax year. Likewise, a business may consider accelerating deductible expenses into 2013 to increase business deductions. Such expenses may include equipment or vehicle repairs, or deferring employee bonuses until the beginning of 2014.
Some businesses may also consider establishing retirement plans for employees to take advantage of credits for part of the costs of starting a qualified plan. There is still time to establish a qualified defined contribution or defined benefit plan before the end of the tax year. Businesses may be eligible to deduct contributions made to the plan for 2013, even if the contributions aren’t made until 2014.