It is that time of year again. Every year in the fourth quarter, businesses in San Jose and all over the United States are looking at the quickly approaching year-end and trying to figure out what they can do now before it is too late to save on taxes for 2013. This is especially true for small businesses, where every dollar of deduction is important because it hits the owner(s) directly in the pocketbook. My law firm is an LLP, so all items of profit and loss flow through to the partners. Therefore, this is the time of year that I look very carefully at how much money is available and what my law firm is going to need or want to buy in the next few months. Do we need a new copier? Do we want to upgrade our software? If so, let's do it in December rather than January and get the deduction this year. With this in mind, here are a few things for business owners to consider before 2013 is over.
Purchase Equipment for Your Business
Make your equipment purchases before year-end. In 2013, up to $500,000 of both new and used assets purchased and actually put in use by December 31st can be expensed. This means you get a dollar for dollar deduction this year, without having to depreciate the asset over its useful life. This is really helpful for partners that want a deduction for every dollar spent so that they do not have taxable profits without available cash for distribution. But this benefit is limited. If you purchase and put in place more than $2,000,000 of assets during 2013, the $500,000 expense is phased out on a dollar for dollar basis. These limits will likely be even lower next year, so take advantage of them now.
Make Tenant Improvements on Your Commercial Property
Another tax break set to expire after his year is the 50% bonus depreciation, which allows companies to write off half the cost of new assets with useful lives of 20 years or less, in the first year. This includes interior leasehold improvements for commercial real estate. The remaining 50% is depreciated as usual. So, if you are planning some nice tenant improvements in your office, do them before year-end, just in case Congress does not get around to extending this tax break.
Purchase an SUV for Your Business
Have you been thinking about a new Sport Utility Vehicle? You can deduct most of the cost of new SUVs that are used 100% for business and weigh over 6,000 pounds, in the year of purchase. First, there is the special $25,000 deduction for new SUVs, add to that the 50% bonus depreciation, plus normal depreciation on top of that, and you end up with approximately $46,000 of a $60,000 heavy SUV being deductible this year.
So whether you are a partner in a law firm like me, or a partner in any type of business partnership, or a shareholder in a corporation, do not wait until tax time to look at what deductions are available to you. Start planning now for tax savings later.
Source: The Kiplinger Tax Letter, Vol. 88, No. 18, Aug. 30, 2013
The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.