November 24, 2014
As we approach the end of 2014, there are tax planning opportunities business taxpayers should consider. In addition, there may be year-end action by Congress to renew dozens of personal and business tax provisions for 2014, most of which expired at the end of the 2013 tax year. Possible “tax extenders” for businesses relate to bonus depreciation, the Work Opportunity Tax Credit, an increased allowable amount for Section 179 depreciation expense, and a reduction in the S corporation recognition period for built-in capital gains taxes, among others.
Some of these opportunities for business taxpayers include:
Tangible Property Regulations
All taxpayers who acquire, produce, or improve tangible property should understand the final tangible property regulations issued by the IRS with an effective date of January 1, 2014. It is important to assure compliance with these regulations to avoid any tax return filing surprises. We recommend you review your asset capitalization policies to ensure you are in compliance with the new regulations. Some of the most important provisions include the following:
- Materials and supplies costing $200 or less with a useful life of 12 months or less can be expensed.
- In terms of asset capitalization and expensing requirements, taxpayers that do not have certified audited financial statements or regulatory filings
- Must have written accounting procedures in place.
- Must expense acquisitions on books and records according to these procedures.
- May expense $500 or less per invoice (or per item if detailed on an invoice) as a “safe harbor” election.
- Ownership Transition and Business Structure Planning
Review buy-sell agreements and any other documents which deal with owner transition. Related funding mechanisms including insurance policies should be aligned with the agreements. Buy-sell agreements should contain appropriate language defining value and how an ownership interest is to be valued upon a triggering event. All documents should be reviewed approximately every two years and updated as necessary so that there are no surprises when transition does occur.
Consider moving from C corporation status to an S corporation in order to avoid double taxation on annual income and capital gains recognized at the time of sale/liquidation. The owners of a C corporation planning to convert to S status should continue in this status for 10 years in order to escape taxation on the gain that existed at the time of S corporation conversion.
Please contact us at 804.270.6980 if you have any questions or would like to discuss tax planning opportunities.