Next year could bring higher business tax bills
By Jim Kendall
This column originally appeared in the December 16, 2013 Daily Herald
You’re forgiven if you don’t plan to turn handsprings next year when you write your annual check to Uncle Sam, but for most business owners the 2013 tax experience apparently won’t be much different than 2012.
So says Greg Dowell, managing partner at Bass, Solomon & Dowell LLP, a Palatine CPA firm.
Pay attention next year, though, Dowell warns, especially if your business has been using Section 179 write-offs and bonus depreciation rules: If you haven’t been talking with your tax advisor, you almost certainly should do so before putting major purchases into next year’s plan.
Taxes could be messy.
“For most businesses, there were not terribly many changes (this year) compared to 2012,” says Dowell. On the other hand, the 2014 tax landscape potentially “shifts pretty dramatically.” The two biggest shifts, he says, are in Section 179 expensing and the bonus depreciation on new equipment.
Both could pretty much disappear.
Add the confusion that has come with new health benefit requirements and the second year of a tax on investment income and a Medicare contribution increase (both for relatively high-income taxpayers), and 2014 easily could be a higher cost tax year, according to Dowell.
Although it’s always possible that Congress will restore some business tax benefits as it attempts to meet yet another budget deadline, here’s how things stood last week:
* Section 179 is the portion of the Internal Revenue Code that currently allows businesses to expense up to $500,000 of qualifying purchases. The problem arrives next year, Dowell says, when “Expensing drops to $25,000.”
The $25,000 maximum actually represents a “back to normal level,” Dowell says. Before a flurry of efforts to pump life into an economy that once appeared headed to 1930s’ levels, the Section 179 expensing limit had been $25,000.
* Much the same get-the-economy-going reasoning was behind a bonus depreciation plan that allowed businesses to deduct 50 percent of the cost of qualifying purchases in the year the purchase was made.
No more. This year “is the last year for the 50 percent bonus depreciation,” Dowell says.
The upshot is that businesses may owe more taxes in 2014. Some could suffer serious pain.
Dowell says that businesses which are not aware of tax law changes could be particularly hurt by the loss of depreciation. “If you lay out $50,000 for equipment and then do not get the deduction . . .” Dowell paused. Obviously, the numbers may not be pretty.
* The new-this-year 3.8 percent tax on investment income that impacts married taxpayers who have adjusted gross income over $250,000 and file jointly sticks around in 2014. So does the .9 percent Medicare tax increase that hits the same financial demographic.
* Healthcare benefits “are somewhere in the conversation, too,” says Dowell. Website sign-up issues and deadline changes “have small business owners wondering what (the rules) will do to, or for, their businesses.”
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