2014 Year-End Tax
the fate of several business-related tax extenders such as R &
D credits, bonus depreciation, and Section 179 expensing that
expired at the end of 2013 is uncertain, there are
still a number of end of year tax
strategies businesses can use to reduce their tax
burden for 2014.
Purchase New Business Equipment
Section 179 Expensing. Business should still take
advantage of Section 179 expensing this year for a couple of
reasons. First, is that in 2014 businesses can elect to
expense (deduct immediately) the entire cost of most new
equipment up to a maximum of $25,000 for the first $200,000 of
property placed in service by December 31, 2014. Keep in mind
that the Section 179 deduction cannot exceed net taxable
business income. In addition, unless Congress reauthorizes it,
the bonus depreciation expired at the end of 2013 and is not
available for 2014.
While most businesses follow a calendar year, for those that
don't there is an exception to the $25,000 cap that allows
those business to take advantage of the $500,000 Section 179
benefit. However, only businesses whose calendar year begins
in 2013 and ends in 2014 can take advantage of this.
Qualified property is defined as property that you placed in
service during the tax year and used predominantly (more than
50 percent) in your trade or business. Property that is placed
in service and then disposed of in that same tax year does not
qualify, nor does property converted to personal use in the
same tax year it is acquired.
Note: Many states have not
matched these amounts and, therefore, state tax may not
allow for the maximum federal deduction. In this case,
two sets of depreciation records will be needed to track
the federal and state tax impact.
Please contact our office if you have any questions regarding
Timing. If you plan to purchase business equipment this
year, consider the timing. You might be able to increase your
tax benefit if you buy equipment at the right time. Here's a
Conventions. The tax rules for depreciation include
"conventions" or rules for figuring out how many months of
depreciation you can claim. There are three types of
conventions. To select the correct convention, you must know
the type of property and when you placed the property in
The half-year convention: This convention applies to
all property except residential rental property,
nonresidential real property, and railroad gradings and tunnel
bores (see mid-month convention below) unless the mid-quarter
convention applies. All property that you begin using during
the year is treated as "placed in service" (or "disposed of")
at the midpoint of the year. This means that no matter when
you begin using (or dispose of) the property, you treat it as
if you began using it in the middle of the year.
Example: You buy a
$40,000 piece of machinery on December 15. If the
half-year convention applies, you get one-half year of
depreciation on that machine.
The mid-quarter convention: The mid-quarter convention
must be used if the cost of equipment placed in service during
the last three months of the tax year is more than 40 percent
of the total cost of all property placed in service for the
entire year. If the mid-quarter convention applies, the
half-year rule does not apply, and you treat all equipment
placed in service during the year as if it were placed in
service at the midpoint of the quarter in which you began
The mid-month convention: This convention applies only
to residential rental property, nonresidential real property,
and railroad gradings and tunnel bores. It treats all property
placed in service (or disposed of) during any month as placed
in service (or disposed of) on the midpoint of that month.
If you're planning on buying equipment for your business, call
us first. We'll help you figure out the best time to buy it to
take full advantage of these tax rules.
Year-End Moves to Take Advantage Of
Investment Tax Credit
Business energy investment tax credits are still available for
eligible systems placed in service on or before December 31,
2016, and businesses that want to take advantage of these tax
credits can still do so.
Business energy credits include solar energy systems (passive
solar and solar pool-heating systems excluded), fuel cells and
microturbines, and an increased credit amount for fuel cells.
The extended tax provision also established new credits for
small wind-energy systems, geothermal heat pumps, and combined
heat and power (CHP) systems. Utilities are allowed to use the
credits as well.
Partnership or S-Corporation Basis. Partners or S
corporation shareholders in entities that have a loss for 2014
can deduct that loss only up to their basis in the entity.
However, they can take steps to increase their basis to allow
a larger deduction. Basis in the entity can be increased by
lending the entity money or making a capital contribution by
the end of the entity's tax year.
Caution: Remember that
by increasing basis, you're putting more of your funds at
risk. Consider whether the loss signals further troubles
Retirement Plans. Self-employed individuals who have
not yet done so should set up self-employed retirement plans
before the end of 2014. Call us today if you need help setting
up a retirement plan.
Dividend Planning. Reduce accumulated corporate profits
and earnings by issuing corporate dividends to shareholders.
Budgets. Every business, whether small or large should
have a budget. The need for a business budget may seem
obvious, but many companies overlook this critical business
A budget is extremely effective in making sure your business
has adequate cash flow and in ensuring financial success. Once
the budget has been created, then monthly actual revenue
amounts can be compared to monthly budgeted amounts. If actual
revenues fall short of budgeted revenues, expenses must
generally be cut.
Tip: Year-end is the
best time for business owners to meet with their accountants
to budget revenues and expenses for the following year.
For more on this topic, see the article below about common
budgeting errors, but if you need help developing a budget for
your business don't hesitate to call us.
Call Us First
These are just a few of the year-end planning tax moves that
could make a substantial difference in your tax bill for 2014.
If you'd like more information about tax planning for 2015,
give us a call at (301) 657-8080. We'll sit down with you,
discuss your specific tax and financial needs, and develop a
plan that works for your business.
Financial Services at Sullivan & Company, CPAs
Sullivan leads our Financial Services Division and is here to
help you navigate your financial future. As an Investment
Advisor Representative, he is able to provide an
independent opinion on the investments you already own or
are considering buying.
We can structure a portfolio
based on your risk tolerance or we can help you decide how
to invest in your company 401(k) plan. We work with each
client to identify their concerns and to provide solutions
according to their situation.
is also experienced in company retirement plans. If you own
a business that does not have a plan; we can discuss your
options and set up a plan that fits your company.
If your business already has a
plan; we offer a free evaluation of the plan to ensure that
it is up to date and working well for you and your
Our goal is to provide personal, unbiased and independent
advice to help you make well-informed decisions about your
financial life and investments.
Contact Paul Sullivan or Jordana Para to set up a free initial
consultation (301) 657-8080.
And as always if you have any questions about accounting or
investments and how they effect you or your business, please give
us a call. We
can help guide you in the right direction.
Remember you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at
Regards, Paul Sullivan, CPA
President, Sullivan & Company