Which Tax Breaks Expire in 2013? (Book Dinner With Your Accountant Now)
BY Gene Marks
Before December 31, take advantage of deductions over capital equipment, improvements, R&D expenses, energy efficiencies, capital gains, and tax-friendly investments.
If you could have dinner with anyone in the world, who would it be? Most people I ask say the Pope, Warren Buffett, Oprah, President Obama, or Howard Stern. (That’s my wife.)
Choose the right dinner companion: your accountant.
If you’re a business owner, the only person you should be having dinner with is your accountant. There are big issues to address with him or her right now, and big decisions to make well before the end of the year. Because there’s a slew of tax breaks that are expiring.
Pay attention to deductions on capital equipment.
The biggest ones for business owners concern depreciation. The Section 179 rule allows many small business owners to deduct up to $500,000 of capital equipment immediately on purchase, instead of depreciating over a bunch of years. This is an enormous incentive to invest. Not only that, but the rule allows you to take the deduction even if you’ve financed the equipment. (And with interest rates so low, why not finance?)
I have many clients who used this rule to save themselves a bundle on taxes over the years. I have other clients who are in the business of selling capital equipment, and who dangled this rule in front of their prospective customers to help them close more deals.
Watch for deductions over improvements.
There’s also Section 178(k), which allows a business owner to take a 50 percent deduction in year one for certain deductions.
Don’t forget the most excellent Section 168(e) where you can take a 15-year straight-line depreciation for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements--that goes back to 39 years after the end of the year. Tax deductions may not be the most thrilling think to think about during the holiday season, but it’s a lot of money you could be saving.
Write off your R&D expenses before the opportunity disappears.
The research and development credit also expires this year. It’s a complex calculation that will probably require the help of an outside firm or a sharp CPA.
If done correctly, it can save you a bundle. The rule generally allows you to use 20 percent of your R&D expenses, above a base, as a credit against the taxes you owe. And like any credit, you can carry it forward or back, depending on your profitability. It has been a huge help to firms in the pharmaceutical and high-tech industries, so follow their lead.
Just like Section 179 comes up for chopping each year, and survives, so does this particular credit. But who knows. Things are kind of crazy in Washington, D.C. right now.
Energy credits are something to consider, too.
I’m considering buying a hybrid vehicle because an "energy" credit is available for individuals. Not only that, but I know of some clients who are speeding up their internal capital improvement projects and including energy efficient materials so that they can take advantage of the energy credits available for businesses, too. These credits all expire on December 31.
Investors and venture capitalists: look for stock-related capital gains savings.
As an investor, you should be aware that certain incentives are coming to an end this year. For example, time is running out to take advantage of Section 1202(a)(4), where if you purchase the stock of a small business (C-Corporation) and then sell it after five years, you won’t pay any capital gains.
And if you know of any S-Corporation business owners who are looking to get the hell out of the rat race, you can entice them to sell you their company and they’ll get a special break on some of the gains.
Here’s what to ask your CPA over drinks-and-dinner.
I know you’d rather stick a fork in your eye than endure a two-hour dinner with your CPA. I get that. So here are a few topics to bring up over cocktails, which should keep him or her talking throughout.
Ask if you should defer or accelerate your income into this year. A lot of smart business owners accelerated income into 2012 before the 2013 Obamacare tax increases hit, and saved themselves a bundle. With all the spending and debt ceiling nonsense going on in Washington, D.C. nowadays, more tax increases could certainly be on the way in 2014 as result of the negotiations.
Ask about tax-friendly investments, such as municipal bonds--which are always popular in a high tax environment.
Ask about 529 plans, where you can put away money for your kids’ college education (not that it’s expensive or anything) and it’ll grow tax-free. I have three kids who started college this fall and our 529 plans were clutch.
Look at your estate taxes again. You can give away $14,000 to each of your kids (maximum $28,000) tax-free this year. The rule will stay the same for 2014. (Mom, are you reading this?) Next year, the exclusion on estate taxes rises from $5,250,000 to $5,340,000, so if you’re about to snuff it, take a few more aspirin and tough it out to 2014, if only for the sake of your loved ones who are itching to grab your millions.
But whatever you decide, don’t take my word for it. Listen to your accountant now. Book that reservation now, and bring a big bottle of Pepto-Bismol. You’re going to need it.
GENE MARKS is a columnist, author, and small-business owner. He oversees the Marks Group, a 10-person technology consultancy to small and medium-size businesses. A certified public accountant, Marks has also worked in the entrepreneurial services arm of KPMG. He writes for The New York Times, Forbes, and The Huffington Post. @genemarks