Continuing on from our previous article on year-end tax concerns and planning options for individuals, the tax professionals at AG Tax have prepared a brief report summarizing the various issues that business owners should consider when planning their tax-saving strategies.
The two main issues are the timing of business income and deductions, and applying the tax extenders where possible, as these are set to expire by December 2013 and may not be renewed. As many businesses have based their tax planning on these extensions, we highly recommend discussing your options with your tax advisor and making a revision of your tax plan.
Final Repair Regulations
With the finalization of the temporary repair regulations (concerning business expenses related to materials and supplies, repairs and maintenance, and capital expenditures), business owners should consider relying on these regulations to manage business expenses from a tax perspective. The regulations include a new De Minimis Expensing Rule, which allows taxpayers to deduct certain qualifying amounts utilized for acquiring/producing qualifying tangible property.
Section 179 Expensing
Business taxpayers should consult their tax advisor regarding utilizing the U.S. Internal Revenue Code section 179, which allows a business owner to elect to treat the cost of qualifying property as a expense rather than a capital expenditure – limited to $500,000 on an investment of $2 million. If a taxpayer places more than $2 million worth of section 179 property into service during a single taxable year, the deduction is reduced, dollar for dollar, by the amount exceeding the threshold.
A business may claim expenses on properties which do not qualify for bonus depreciation and are subject to long modified accelerated cost recovery system.
Additionally, one may carry forward the deductions in future tax years if the deductions under section 179 expensing are beyond qualifying limits. However, a carryover is not simple and subject to certain tax rules, so it is recommended to consult your tax practitioner regarding such expense claims and carryovers.
Safe Harbour for Small Taxpayers with Buildings
Under the Safe Harbour rules in the final repair regulations, small taxpayers are not required to capitalize improvements if the total amount paid for repairs, maintenance, improvements or other expenses incurred on a building, do not exceed $10,000 or 2% of the unadjusted basis of the building.
Expiring Tax Provisions
Certain tax provisions are set to expire this year-end, including:
• 15-year straight-line cost recovery for qualifying leasehold, retail, and restaurant improvements,
• 50% bonus depreciation on qualified business service property,
• Work Opportunity Tax Credit (WOTC) – a one-time tax credit to private sector employers for hiring job seekers facing employment barriers,
• Research & Development tax credit, and
• 5-year recognition period for S corporation built-in gains tax, Indian Employment Credit, and New Markets Tax Credit which were earlier extended through American Tax Relief Act of 2012 (ATRA).
Business owners who previously planned their taxes around these provisions should revisit their tax strategies with their tax advisors and consider alternative tactics in case there are no further extensions.
For further details, see our previous article U.S. Tax Provisions expiring after 2013.
This has been just a short summary of some issues and there are various other tax strategies to help reduce or eliminate taxes which have not been covered. It is in a business owner’s best interest, not only do their own research, but also to consult a tax practitioner regarding his/her tax situation and get a tax plan in place to take advantage of the U.S. Internal Revenue Service’s tax credits and deductions wherever possible.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.