It seems every year Congress waits until the last moment to enact extensions on tax breaks that have expired. In the meantime, here are some tips for businesses to consider to reduce 2015 taxes:
- Defer income to 2016
- Cash method businesses should consider delaying sending their invoices in order to receive payment in 2016. If feasible accrual method businesses should hold off providing services to their clients until January 1st.
- Accelerate and maximize deductions
- Businesses should identify purchases and determine the available money that can be spent prior to January 1, 2016 for things such as equipment, supplies and repairs. Cash method businesses should consider paying bonuses before January 1st. Under Section 179, businesses should try to deduct expenses for purchases of tangible property. The expensing limit is currently $25,000 but an extender of the prior year higher limit may pass Congress before year end. A reduction to this limit starts to phase in when property placed in service in the tax year exceeds $200,000, again pending a higher limit if Congress comes through with an extension.
- Businesses should try to take advantage of the de minimis safe harbor election. The IRS recently changed the amount that small businesses can deduct for small tools and equipment to $2,500 per item, up from $500. The actual change takes place January 1st, 2016 but the IRS has said it will not challenge the $2,500 amount if taken in 2015. Businesses with audited financial statements can deduct purchases of up to $5,000 each.
- Small businesses with average gross receipts of less than $10 million can take advantage of a safe harbor for repairs, maintenance, or improvements to eligible buildings. If the cost does not exceed the lesser of $10,000 or 2% of the building’s unadjusted basis, expenses can be deductible under this safe harbor.
- Affordable Care Act benefits
- Small businesses should consider whether they qualify for the Section 45R credit. This credit helps small business employers pay for employees’ health insurance premiums. An employer qualifies for Sec. 45R credit if it has 25 or less full time equivalent employees with average annual wages of less than $50,000.
- Eligible employers can also claim this credit for two consecutive tax years. They must file Form 8941, Credit for Small Employer Health Insurance Premiums, in the first tax year.
- Domestic production activities deduction
- Under Section 199(b)(1), business with U.S. manufacturing activities qualify for this deduction. If your business qualifies for this deduction consider whether the 50% of W-2 wages limitations on that deduction applies. Businesses should consider accelerating salaries or bonuses into the last quarter of 2015 to increase the amount of this deduction.
For more tax planning strategies contact your LSL Advisor at 714.569.1000.
