Earlier this week Congress retroactively passed legislation that temporarily renewed over 50 tax provisions and incentives that expired at the end of 2013.
The legislation which is expected to be signed within days by President Obama offers business taxpayers access to new tax savings opportunities. Although the renewal is welcome news for companies, it creates some complexities for those who did not consider these incentives in their 2014 tax planning strategy. As the window of opportunity opens, many companies have to act quickly to determine how/if they should leverage these tax incentives before year end. To help clients, prospects and others understand the significance of this legislation, Hanson & Co. has provided a brief summary of the key corporate provisions.
Key Corporate Tax Relief Extenders:
- Section 179 Deduction – Businesses once again are able to immediately deduct up to $500,000 of the amount used to obtain qualifying equipment or assets rather than break the deduction into pieces over time according to a depreciation schedule. This first-year depreciation deduction limit would have been only $25,000 without the extension from Congress. Generally, this deduction applies to new or used equipment and specialized production facilities (not to real estate). There are several limitations to consider, so it’s important to work with a professional advisor before making any purchases.
- 50% Bonus Depreciation – For those business owners who have placed new (not used) property in service during 2014, you are eligible for a first-year bonus depreciation deduction. It is available to any business, regardless of size or industry focus. Consider how you might offset any significant 2014 asset acquisition deductions, including converting pre-tax retirement accounts to Roth IRAs.
- Work Opportunity Tax Credit – This credit is available for any company that hired new employees from a specific disadvantaged group for full time employment including ex-felons, veterans and low income individuals. Before claiming the credit a company must certify each veteran and other qualifying employee through the IRS. The maximum credit per employee ranges from $2,400 to $9,600 for disables veterans who have been unemployed 6 months or greater. Since the credit expires at year end, it’s essential to take immediate action to get employees certified.
- Research & Experimentation Credit – The credit provides an incentive for any company to increase their R&D activities and expenditures. The incentive offers companies as much 20 percent of the cost of research or experimentation. To determine if a company’s activities qualify there is a four part test that must be applied. Qualifying activities include the development or improvement of a business component (i.e. process, technique, product or invention). Research conducted must be technological in nature, intended to eliminate uncertainty in product or process development and must be accomplished through an experimental process (trial and error, simulation or modeling). If your company has conducted activities that meet these qualifications, then it’s important to contact an advisor to take advantage of this credit.
- Related-Party Loans –Many closely-held business owners give and have loans to and from their businesses. To remain in compliance for 2014 tax purposes, every loan must include adequate an interest rate. For loans without a specified repayment date, the minimum interest rate for 2014 is only 0.28%. A long-term note – those with a maturity longer than nine years – can be set as low as 2.74% per the current rates. Keep track of the IRS minimum interest rate tables, which are published each month. If interest rates rise, the IRS minimums will quickly follow to match market standards. At that point, those with substantial related-party debt should consider converting to term debt at lower rates. Be sure to consider these loans and related interest when planning your 2014 taxes.
- Repair Regulations – Something new for 2014 is a repair and capitalization regulation. Small asset purchases may be deducted per an annual “safe harbor de minimis” election, the amount of which will vary based on the taxpayer’s financials. In addition, a late “partial disposition” deduction may be claimed. For instance, if you made repairs to your property and claimed it on a prior year’s taxes but left out certain costs of that repair, you can now claim them as a late deduction. As you make tax preparations with our professionals, discuss these opportunities to take advantage of expenditures that improve your existing assets and ensure that they are properly categorized for conformity.
Limited Time Only
Unfortunately, these provisions will be renewed for the 2014 tax year only, which means companies have just a few short weeks to take advantage of these incentives. On January 1, 2015, they will no longer be effective resulting in missed opportunities for those who did not act. Now is the time to take action and uncover additional tax savings opportunities..
Do you have questions about the 2014 Tax Extenders legislation? Interested to know how it will impact your company? Hanson & Co. wants to help! Contact us at (303) 388-1010 or fill out our contact form for additional information. We look forward to speaking with you.