Earlier this month Congress passed the Tax Increase Prevention Act of 2014 (TIPA) which extends several of the tax incentives that expired at the end of 2013. The legislation signed by President Obama provides long awaited relief to both business and individual taxpayers. To help clients, prospects and others understand the significance of this legislation; we have provided a summary of the key corporate provisions.
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 disabled veterans who have been unemployed 6 months or greater.
- 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 as 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, it’s important to contact an advisor to take advantage of this credit. Be sure to consider these loans and related interest when planning your 2014 taxes.
- Repair Regulations – Something new for 2014 is the 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, be sure to discuss these opportunities to take advantage of expenditures that improve your existing assets and ensure they are properly categorized.
Now is the time to take action and begin planning for ways to take advantage of these opportunities. For additional information please contact JLK Rosenberger at 949-860-9902, or click here to contact us.