There are dozens of tax provisions expiring New Year’s Eve…or dropping significantly the moment we’re in 2014. You may want to consider taking advantage of some of these breaks over the next two weeks as several of these provisions will affect your business and individual taxes. Below are some expiring deductions or credits that are often used by my small business and individual clients.
Tax Provisions That Will Affect Your Business Taxes
Section 179 Expensing Drops – One of the biggest deductions available to all businesses will be dramatically reduced in 2014. 2013 was the last year for expensing up to $500,000 ($2,000,000 phase-out) of Section 179 property. As of Jan. 1, 2014, the Section 179 property-expensing limit will drop to $25,000, phasing out after $200,000 of total purchased equipment. Also, qualified real property will no longer be eligible for Section 179 expensing. If you are going to be purchasing a large amount of equipment, purchase it and put it in service before the end of the year.
Bonus Depreciation Deduction Expires – The 50% first-year bonus depreciation deduction applied to qualified properties acquired and placed in service before Jan. 1, 2014. The bonus deduction could be taken on the adjusted cost basis of the property after any Section 179 expensing. To have qualified for the 50% bonus depreciation, the property must have been new, acquired during 2013 and placed in service during 2013. In 2014, bonus depreciation will only be available for long production-period property and certain aircraft. If you are going to be purchasing a large amount of equipment, purchase it and put it in service before the end of the year.
Shorter Recovery Period for Improvement & Properties Expires – For qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service in 2013, a 15-year recovery period applied rather than the normal 39-year recovery period used for non-residential real property. That shorter recovery period is no longer available for property placed in service after 2013. Instead, the 39-year recovery period applies.
Provisions That Will Affect Your Individual Taxes
Charitable Donations Using IRA Distributions – Before 2014, taxpayers over the age of 70 1/2 could make a tax-free IRA distribution to a qualified charity or charities. The distributions must have been made directly from the IRA custodian to a charity or charities. Donating this way reduced a taxpayer’s adjusted gross income. This, in turn, potentially reduced the percentage of social security income that was taxed from 85% to 50% and increased certain deduction by reducing the effects of the limitations on personal exemptions, itemized deductions, and charitable contributions that are tied to higher adjusted gross income amounts. This rule will not be available in 2014.
Qualified Principal Residence Debt Exclusion – Under a special rule that expires at the end of this year, no income is recognized from the foreclosure of your qualified principal residence. The discharge of such debt was excludable from gross income and not taxable for foreclosures through 2013.
Deduction for Mortgage Insurance Premiums – Homeowners who do not put 20% down on their home are required to buy Mortgage Insurance. In 2013 homeowners were allowed to deduct those premiums on their itemized return. This deduction will no longer be available in 2014./p>
State and Local Sales Tax Deduction Expires – 2013 is the last year that individual taxpayers are allowed to deduct sales and use tax in lieu of state income taxes on their individual tax return as an itemized deduction. This deduction was very valuable to us in Texas since we do not have a state income tax.
Deduction for Eligible Teacher Expenses – The deduction for eligible teacher expenses expires this year. In 2014, educators can no longer deduct the $250 for qualified expenses.
In order for these tax breaks to be renewed, Congress would need to pass new legislation to extend these tax breaks. We will see what they do before the end of the year. We recommend erring on the side of caution and make those purchases or acquisitions by EOY 2103…don’t wait on Congress!
Contributed by Roy Fisher, CPA, of the Fisher CPA Firm PC