Coming Into Focus: Buy Now or Pay More in Taxes Later!
Tax Savings: A number of hefty tax exemptions and credits are set to expire at the end of this year. With Congress in budget and tax battles, there is no sign that they will be extend. Take advantage of these provisions now before it is too late.
Date Posted: 11/1/2013
If you want to take advantage of tax loopholes and exemptions that expire at the end of 2013, you have just about three months to act. Now, is the perfect time to make a few purchases, handle a few financial transactions, or take other steps to limit what Uncle Sam gets from your company in taxes this year.
For starters, you need to pay attention to equipment and machinery purchases. Unless Congress acts and it seems to be stalemated on everything right now, current policies will be much less generous next year. So now might be the right time to buy that piece of equipment you have been considering pulling the trigger on for months.
Assets purchased and put in use by Dec. 31 can be expensed according to 2013 policies. Companies can expense up to $500,000 of assets put in use during this year, which includes both new and used assets. The $500,000 limitation phases out dollar for dollar once more than $2,000,000 of assets are placed in service during the tax year.
The ceiling for next year is likely to be around $145,000 and the phase out will start around $580,000. Smart companies should take advantage of the higher limit now.
Also, the 50% bonus depreciation is set to expire after 2013. Firms using this break can write off one-half of the cost of new assets with useful lives of 20 years or less. This includes improvements made to the interiors of commercial reality by leaseholders. The remainder of the cost is recovered through regular depreciation schedules.
Business owners can shift income and expenses between 2013 and 2014. With tax rates not likely to change next year, it generally is better to defer income and accelerate deductions unless you expect to be in a higher tax bracket next year. Discuss this with your tax account because rules can change depending on the type of company you run.
The research and development (R&D) tax credit allows businesses to continue deducting 14% to 20% for producing prototypes and conducting research on business components. Without action by Congress, the R&D credit ends on December 31, 2013.
Remember that a credit is much better than a deduction; it reduces your tax bill dollar for dollar whereas a deduction only provides a partial reduction in your taxes.
While many business friendly tax provisions will remain in the code next year, there is no guarantee that Congress will renew some of the more generous rules currently on the books today. You should take some time while you can still make a move in this year by discussing your plans with your tax accountant and see how you can take the most advantage of existing credits and write offs.
Two very good resources to visit are http://www.kiplinger.com/fronts/channels/taxes/index.html or http://www.entrepreneur.com/tax/index.html
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