2015 Year-End Tax
While the fate of several business-related tax extenders such
as Research & Development tax credits, bonus depreciation, and
Section 179 expensing that expired at the end of 2014 is
uncertain, there are still a number of end of year tax
planning strategies businesses can use to reduce their tax
burden for 2015.
Businesses using the cash method of accounting can defer
income into 2016 by delaying end-of-year invoices so payment
is not received until 2016. Businesses using the accrual
method can defer income by postponing delivery of goods or
services until January 2016.
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 2015 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, 2015. 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 2014 and is not
available for 2015.
While most businesses follow a calendar year, for those that
don't there is an exception to the $25,000 cap that allows
those businesses to take advantage of the $500,000 Section 179
benefit. However, only businesses whose calendar year begins
in 2014 and ends in 2015 can take advantage of this.
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.
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 the 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 simplified
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 service.
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
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
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
the office and speak to a tax professional who can help you
figure out the best time to buy that equipment and take full
advantage of these tax rules.
OTHER YEAR-END MOVES TO TAKE
Business Health Care Tax Credit. Small business
employers with 25 or fewer full-time-equivalent employees
(average annual wages of $51,600 in 2015) may qualify for a
tax credit to help pay for employees' health insurance. The
credit is 50 percent (35 percent for non-profits).
Energy 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.
Regulations. Where possible, end of year repairs
and expenses should be deducted immediately, rather than
capitalized and depreciated. Small businesses lacking
applicable financial statements (AFS) are able to take
advantage of de minimis safe harbor by electing to deduct
smaller purchases ($500 or less per purchase or per invoice).
Businesses with applicable financial statements are able to
deduct $5,000. Small business with gross receipts of $10
million or less can also take advantage of safe harbor for
repairs, maintenance, and improvements to eligible buildings.
Please call if you would like more information on this topic.
or S-Corporation Basis. Partners or S corporation
shareholders in entities that have a loss for 2015 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.
Remember that by increasing basis, you're putting more of your
funds at risk. Consider whether the loss signals further
DID YOU KNOW
that Sullivan & Company manages Pension Funds,
Retirement Plans & Taxable Accounts through Archer
Investment Corporation & Fidelity Investments for our
Fidelity is the custodian for more
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Let Sullivan & Company Analyze Your Asset Allocation
& Risk Tolerance for FREE!
199 Deduction. Businesses with manufacturing
activities could qualify for a Section 199 domestic production
activities deduction. By accelerating salaries or bonuses
attributable to domestic production gross receipts in the last
quarter of 2015, businesses can increase the amount of this
deduction. Please call to find out how your business can take
advantage of Section 199.
Plans. Self-employed individuals who have not yet
done so should set up self-employed retirement plans before
the end of 2015. Call today if you need help setting up a
Planning. Reduce accumulated corporate profits and
earnings by issuing corporate dividends to shareholders.
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 planning tool.
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.
If you need help developing a budget for your business don't
hesitate to call.
CALL A TAX PROFESSIONAL FIRST
These are just a few of the year-end planning tax moves that
could make a substantial difference in your tax bill for 2015.
If you'd like more information about tax planning for 2016,
please call to schedule a consultation to discuss your
specific tax and financial needs, and develop a plan that
works for your business.
Need assistance? Help is just a phone call away at
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