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While tax reform proposals are currently being discussed, 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 was set at $500,000, subject to a phase-out threshold of $2 million. These figures are indexed for inflation setting the 2017 amounts at $510,000 and $2,030,000 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. This credit, which has 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 if you can show that you have 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 of your collection efforts including correspondence, e-mails and telephone calls with debtors.
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. Please contact a Marvin and Company, P.C. representative to discuss planning ideas specific to your business.