Last Minute 2013 Business Tax Planning

Although, the IRS has delayed the start of tax filing season to January 31, 2014, taxpayers have less than two weeks until December 31, 2013, to implement any “last minute” income tax planning strategies.  Here is a checklist of several strategies applicable to businesses:

1.      Purchase and “place in service” any necessary equipment or furnishings by December 31^st to take advantage of  the 50% bonus depreciation that goes away after 2013 and to utilize the higher Section 179 business expensing limit of up to $500,000 that drops to only $25,000 for tax years beginning in 2014.

2.      Adopt a qualified retirement plan, such as a profit sharing plan, a 401(k) plan, or a defined benefit plan.  Unlike a qualified plan, a simplified employee pension (SEP) plan does not need to be adopted by December 31^st.

3.      Purchase stock directly from a qualified small business C corporation to be eligible for a potential 100% gain exclusion upon a future qualifying sale of the stock.  The exclusion drops to 50% for stock purchased after 2013.

4.      Cash basis taxpayers should pay and mail all outstanding bills and payroll by December 31^st.

5.      Accrual basis corporations may declare and accrue bonuses by December 31^st as long as actual payment occurs no later than March 15, 2014.  Special rules exist for shareholders owning directly or indirectly more than 50% of the corporation’s stock.  Bonuses to such shareholder-employees must be paid by December 31^st to be deductible.

6.      Estimate the business’ marginal income tax rate for 2013 and 2014 and shift income and deductions as appropriate to allow more income to be taxed at lower tax rates, or to allow more deductions to be claimed at higher tax rates.

7.      If you own an interest in a partnership or an S corporation, you may need to increase your tax basis in the entity so you can deduct a loss from it for this year.