Year-End Tax Planning Moves for Businesses & Business Owners

Tax reform has been a major topic of discussion in Washington, but it’s still unclear exactly what such legislation will include and whether it will be signed into law this year. What does this mean for you and your tax strategies? In your 2017 planning, you’ll need to follow current tax law, keeping an eye on what could happen in the future and be ready to act quickly if changes occur. Below are several tax planning strategies to consider:

  • Purchase equipment. There are generous limits for the Section 179 expensing election and the availability of bonus depreciation. These breaks generally apply to qualified fixed assets, including equipment or machinery, placed in service during the year. For 2017, the maximum Sec. 179 expense deduction is $510,000, subject to a $2,030,000 phaseout threshold.
    Additionally, for 2017, your business may be able to claim 50% bonus depreciation for qualified costs in excess of what you expense under Sec. 179. Bonus depreciation is scheduled to be reduced to 40% in 2018 and 30% in 2019 before it’s set to expire on December 31, 2019.
  • Businesses may be able to take advantage of the “de minimis safe harbor election” to expense the costs of lower-cost assets and materials and supplies. To qualify for the election, in general, the cost of a unit of property can’t exceed $2,500.
  • Cost segregation can provide tax benefits from accelerated depreciation deductions and easier write-offs when an asset becomes obsolete, broken or destroyed. In a cost segregation study, certain building costs previously classified with a 39-year or 27.5-year depreciable life, can instead be classified as personal property or land improvements, with a 5, 7, or 15-year rate of depreciation using accelerated methods. This strategy offers property owners the opportunity to defer taxes, reduce their overall current tax burden, and free up capital by improving their current cash flow.
  • Postpone income until 2018 and accelerate deductions into 2017 to lower your 2017 tax bill. This could certainly be the case if Congress succeeds in dramatically reducing the corporate tax rate, beginning next year. Under the framework for tax reform now being considered, the corporate tax rate would be reduced to 20% (down from the current top rate of 35%) and the  corporate AMT would also be eliminated.
  • Consider disposing of a passive activity in 2017 if doing so will allow you to deduct suspended passive activity losses.
  • If your business qualifies for the domestic production activities deduction (DPAD) for its 2017 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2017 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Keep in mind that the DPAD wouldn’t be available next year under the tax reform plan currently before Congress.
  • Consider a research & development tax credit study. Companies including passthrough entities, such as partnerships and S corporations, may be overlooking the research tax credit (“RTC”) because they are not aware that they are engaged in eligible activities. The RTC allows for eligible small businesses to claim the credit against alternative minimum tax (“AMT”). In addition, eligible startup companies (those with less than $5 million in gross receipts and earning revenue for less than 5 years) may claim up to $250,000 of the credit against the company’s payroll tax.
  • If your business was affected by Hurricane Harvey, Irma, or Maria, it may be entitled to an employee retention credit for eligible employees.

These are just some of the year-end steps that can be taken to save taxes. Please contact Wouch, Maloney & Co., LLP so that we can advise you on which tax-saving moves to make or for assistance with any other tax or other financial issues.