Tax Planning Strategies
There are a number of end of year tax planning strategies that
businesses can use to reduce their tax burden for 2017.
Here are a few of them:
Businesses using the cash method of accounting can defer
income into 2018 by delaying end-of-year invoices, so payment
is not received until 2018. Businesses using the accrual
method can defer income by postponing delivery of goods or
services until January 2018.
Section 179 Expensing. Business should take advantage
of Section 179 expensing this year for a couple of reasons.
First, is that in 2017 businesses can elect to expense (deduct
immediately) the entire cost of most new equipment up to a
maximum of $510,000 for the first $2,030,000 million of
property placed in service by December 31, 2017. Keep in mind
that the Section 179 deduction cannot exceed net taxable
business income. The deduction is phased out dollar for dollar
on amounts exceeding the $2.03 million threshold and
eliminated above amounts exceeding $2.5 million.
Bonus Depreciation. Businesses are able to depreciate
50 percent of the cost of equipment acquired and placed in
service during 2015, 2016 and 2017. However, the bonus
depreciation is reduced to 40 percent in 2018 and 30 percent
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 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 explanation:
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
the office and speak with a tax professional who can help you
figure out the best time to buy that equipment and take full
advantage of these tax rules.
Moves to Take Advantage Of
Small Business Health Care Tax
Credit. Small business employers with 25 or fewer
full-time-equivalent employees (average annual wages of
$52,400 in 2017) may qualify for a tax credit to help pay for
employees' health insurance. The credit is 50 percent (35
percent for non-profits).
Business Energy Investment Tax
Credit. Business energy investment tax credits are
still available for eligible systems placed in service on or
before December 31, 2021, and businesses that want to take
advantage of these tax credits can still do so.
Business energy credits include geothermal electric, large
wind (expires in 2019), and solar energy systems used to
generate electricity, to heat or cool (or to provide hot water
for use in) a structure, or to provide solar process heat.
Hybrid solar lighting systems, which use solar energy to
illuminate the inside of a structure using fiber-optic
distributed sunlight, are eligible; however, passive solar and
solar pool-heating systems excluded are excluded. Utilities
are allowed to use the credits as well.
Repair 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 ($2,500 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
Partnership or S-Corporation Basis.
Partners or S corporation shareholders in entities that have a
loss for 2017 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 ahead.
Section 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 2017,
businesses can increase the amount of this deduction. Please
call to find out how your business can take advantage of
Self-employed individuals who have not yet done so should set
up self-employed retirement plans before the end of 2017. Call
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 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 2017.
If you'd like more information about tax planning for 2018,
please call to schedule a consultation to discuss your
specific tax and financial needs, and develop a plan that
works for your business.
If you have any questions about these topics, don't hesitate to call. Help is just a phone call away at
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