Looming Change to Section 179 Expensing Amounts

Under current tax law, certain purchases of new or used property may be “expensed” for income tax purposes under Section 179 of the tax code, in the year of purchase, instead of being depreciated over a number of years.  The amount that taxpayers can expense is currently $500,000 for tax years beginning in 2013.  After 2013 the amount drops to $25,000.  The expensing limit is reduced dollar for dollar as total eligible Section 179 property purchases during the year exceed $2 million.  After 2014 the beginning of the phase-out starts at only $200,000. 

In addition to changes in these limits, the provisions permitting Section 179 to apply to the cost of qualified leasehold improvements, qualified restaurant improvements, new restaurant buildings, qualified retail improvements, and to off-the-shelf computer software will no longer apply in years beginning after 2013. 

While considering year-end business tax planning, you should take note of these changes.  There is a chance that Congress will restore the higher limits for years after 2013, but nothing is certain about what Congress will do. 

Fiscal-year partnerships, limited liability companies, and S corporations (known as “pass-through entities” because their owners pay the tax on company profits) should be careful of a potential trap that could waste part of their Section 179 expensing election.  For fiscal years beginning in 2013, the full amount of the expensing limits is available.  However, since Section 179 deductions of pass-through entities are allocated to owners in the calendar year in which the fiscal year ends (by Schedule K-1), the owners must contend with 2014 limitations.  For example, assume an S corporation whose fiscal year starts November 1, 2013, elects to expense $200,000 of equipment under Section 179.  Assume further that the S corporation is owned by two 50% owners.  The tax result is that only $50,000 of the $200,000 expense is deductible ($25,000 for each owner).  The excess $150,000 is lost!  In this case, the S corporation should wait to make the Section 179 election on its tax return until it learns of any potential tax law extensions.  If the law isn’t extended, then the S corporation should elect to expense only $50,000 and depreciate the balance of the cost to avoid wasting any deductions.

Same-Gender Married Couples in Utah May Now File Joint Income Tax Returns

This is an update to my original blog post on this subject.
A U.S. federal district judge ruled on December 20, 2013, that Utah's constitutional ban on same-sex marriage violates the U.S. constitution.  About 1,400 gay couples rushed to get married in Utah before the U.S. Supreme Court issued a stay on the district judge's ruling on January 6, 2014, pending an appeal.  The Utah governor announced that the state would not recognize the gay marriages performed during this brief time period, pending an appeal.  The Obama administration announced that the federal government would recognize these marriages.  To address the confusion of whether 2013 Utah income tax returns could be filed using a joint status, the Utah State Tax Commission issued an announcement on January 15, 2014 that reverses its earlier guidance referenced below.

Same-sex couples who are eligible to file a joint federal income tax return and who elect to file jointly, may also file a joint 2013 Utah individual income tax return.  Note that this announcement applies more broadly than to just those marrying in Utah in late December 2013.  It also appears to apply to couples legally married in other states.  Eligible married couples may file a joint return if they are married as of December 31, 2013.  The notice is expressly limited to the 2013 tax year.  It also mentions the possibility that taxpayers may be required to amend their 2013 tax return depending upon future court rulings.

Previously it was announced:
On October 9, 2013, the Utah State Tax Commission released a notice stating that same-sex couples in Utah must file a Utah income tax return with a filing status of single or head of household.  This guidance comes in light of an IRS ruling (Rev. Rul. 2013-17) that same-sex couples may file a joint Federal income tax return, no matter where they live, if their marriage is legally recognized in the state in which the marriage ceremony was performed.  Utah does not recognize same-sex marriages.  Those who are impacted by this notice must provide the same Federal income tax information on the Utah tax return that the taxpayer would have provided prior to the IRS ruling.  This means that another Federal income tax return must be prepared only for Utah tax purposes, using either a single (not married filing separately) or a head of household status.