Year End Tax Planning – Impact of Expired Tax Breaks

As the end of year quickly approaches, many corporate taxpayers will begin year-end tax planning.

Generally these are steps taken to leverage incentives and programs that can reduce overall tax liabilities. In the past, activities like equipment purchases, research and development, and leasehold improvements have yielded some tax saving incentives. However, at the end of 2013 many familiar tax credits, incentives, and benefits expired. This means that how companies approach their year-end tax planning activities for 2014 will be much different than prior years. To help clients understand which incentives are no longer available, Hanson & Co. has provided a list of the most popular expired incentives.

Expired Business Tax Provisions

  • Work Opportunity Tax Credit (WOTC) – The WOTC provided an incentive for companies to hiring individuals that faced significant barriers to employment, including unemployed veterans, ex-felons, and food stamp recipients. The credit provided companies with a benefit equal to 25% to 40% of the qualifying employee’s first year wages. Generally the maximum credit ranged around $2,400 per employee. In 2014, companies will no longer be able to realize this incentive.
  • Section 179 Expensing – In past years, companies could immediately deduct up to $500,000 in new or qualifying used asset purchases limited at $2M. At the end of 2013, this generous deduction was phased out and the limits have reverted to the previous amount of $25,000 in new or qualifying assets purchases limited at $200,000. So for 2014 there is some incentive available, but it is significantly reduced over prior years.
  • Bonus Depreciation – Over the past few years, the amount of bonus depreciation available to companies have changed. It was set at 100% bonus depreciation and then in 2013 the amount was reduced to 50%. Remember, this provision allowed businesses to claim additional first year depreciation equal to 50% of qualified asset costs. The depreciation was broadly available for new equipment with a recovery period of 20 years. In 2014, there is no bonus depreciation available for new equipment purchases.
  • Research & Development Credit – A company involved in specific research and development activities, such as developing/innovating new products, experimenting with new technologies, and developing new production processes, could qualify for several thousands of dollars in tax credits. In 2014, companies will not be able to claim this tax credit. Although there has been movement within Congress to permanently extend this credit as of the writing of this article, an extension has not been passed
  • New Markets Tax Credit – This incentive provided companies with an incentive for making an investment in real estate or businesses in low income areas. The credit was equal to 39% of the company’s investment in qualifying areas and could be claimed over a seven year period. In 2014, companies will no longer be able to claim this credit.

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Now is the time to consider changes to leverage these expiring tax credits. If they are not renewed by Congress before year-end, then companies need to have a contingency tax plan in place to ensure they realize maximum tax saving benefits. For additional information please contact Hanson & Co. at (303) 388-1010 or click here for email. We look forward to speaking with you soon.