· 50% first-year bonus depreciation has been extended to
include qualified property acquired and placed in service by December 31, 2015
(previously expired after 2014 and expiring once more after a phase-out period
of 2018-2019). The property’s original
use must begin with the taxpayer (new property).
· The higher Section 179 business expensing limits have
been extended to include qualifying property (new or used) acquired and placed
in service in tax years beginning in 2015 (previously expired for tax years
beginning after 2014 but now made permanent).
The expensing limit is restored to $500,000; phasing out dollar for
dollar as purchases exceed $2,000,000.
These limits are now indexed for inflation beginning in 2016. Previously these limits would have been
$25,000 and $200,000 respectively.
· Adopt a qualified retirement plan, such as a profit
sharing plan, a 401(k) plan, or a defined benefit plan by December 31st. Alternatively, a simplified employee pension
(SEP) plan can be adopted by the due date of the tax return (with extensions).
· Estimate the business’ marginal income tax rate for
2015 and 2016 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.
· Personal service (in the fields of health, law,
engineering, architecture, accounting, actuarial science, performing arts, or
consulting) C corporations (PSC) are subject to a flat income tax rate of 35%
where substantially all of the shareholders are employees. Such corporations and shareholders will
generally save income taxes by zeroing out corporate taxable income by year-end
bonuses to the shareholder-employees.
· Cash basis taxpayers should pay and mail all
outstanding bills and payroll by December 31st.
· Accrual basis corporations should declare and accrue
bonuses by December 31st as long as actual payment occurs no later than March
15, 2016. A special rule applies to
shareholders owning directly or indirectly more than 50% of a C corporation’s
stock. The special rule also applies to
any PSC shareholder-employee and to any S corporation shareholder-employee. Under the special rule, bonuses must be paid
by December 31st to be deductible in 2015 (essentially being placed on the cash
method).
· Write-down the value of subnormal inventory
items. Subnormal items are goods that
are unsalable at normal prices or unusable in the normal way due to damage,
imperfections, shop wear, changes of style, odd or broken lots, or other
similar causes. You can take a deduction
for any write-downs provided you offer to sell the items at the new price
within 30 days of your inventory date. However,
the inventory does not actually have to be sold within the 30-day time frame.
· If you own an interest in a partnership or an S
corporation, you may need to increase your tax basis in the entity in order to
deduct a loss from it for this year.
· If you do not already have an existing policy, be sure
that a written capitalization policy is in place by December 31, 2015 for the
2016 tax year. This policy permits
low-cost asset purchases ($2,500 or up to $5,000 for audited financial
statements) to be expensed in the income statement instead of capitalized on to
the balance sheet and depreciated. Your
financial accounting records must also treat these low-cost asset purchases as
expenses. While an annual election in
the income tax return must be made each year to claim the deduction, it does
not appear that a new capitalization policy must be adopted each year. Rather, a written capitalization policy
simply must be in place before the start of the tax year for which you are
making the tax return election.
Technically the accounting policy only needs to be in writing for the
$5,000 limit for audited statements, but it is a good practice for all
businesses to follow.
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