As with individuals, year-end tax planning for businesses remains somewhat uncertain. However, the Protecting Americans from Tax Hikes (PATH) Act of 2015 preserved certain tax benefits that can be incorporated into a logical year-end plan. Here are five ideas for small-business owners to consider:
1. Speed up equipment deductions. Under the PATH Act, the maximum Section 179 deduction for qualified business property is set at $500,000, subject to a phase-out threshold of $2 million, and these figures are indexed for inflation ($510,000 and $2,030,000 for 2017, respectively). This entitles your business to a current deduction up to the limits. Furthermore, your business may claim 50% bonus depreciation on qualified property. This tax break will be reduced to 40% in 2018 and 30% in 2019, before expiring in 2020. Plan equipment purchases to maximize the tax benefits.
2. Investigate research credits. A business may be entitled to a tax credit for incurring qualified research and development costs. Generally, the research credit is equal to 20% of the expenses over a base amount, or the business can elect a simplified 14% credit. Be aware that the credit, which had expired and been extended numerous times in the past, was finally made permanent by the PATH Act.
3. Hire target group workers. The PATH Act also extends through 2019 the Work Opportunity Tax Credit (WOTC) for hiring workers from certain “target” groups. Generally, the WOTC is equal to 40% of first-year wages up to $6,000, for a maximum credit of $2,400 per worker. (Other special rules may apply.) There is no limit on the number of credits your business can claim for qualified workers.
4. Rescue bad debt deductions. If you have not been paid amounts owed to your business, you may be able to salvage a deduction for debts that are “worthless.” But you must show that you’ve made good faith efforts to collect the debts. To secure a deduction for 2017, step up your collection activities before the end of the year. Keep detailed records—including correspondence, e-mails and telephone calls with debtors—of your collection efforts.
5. Kick off a new business venture. A special provision in the tax code currently allows you to deduct up to $5,000 of qualified startup expenses for a new business. Any excess must be amortized over 180 months. However, to qualify for the current tax write-off, the operation must be an ongoing activity, so make sure the doors are officially “open for business” before the end of the year.
This is just a brief overview of several potential tax moves for small-business owners. Contact us to obtain specific guidance related to the best approach for your business.