There are any number of different tax-related issues for business owners to tackle at the end of every year. But this year, there’s more of a sense of urgency, at least in regards to that tax-related to-do list. That’s because even though you may not know it, you’re on a deadline that’s less than two months away. A lot of federal tax breaks—dozens, according to attorney and small business/tax expert Barbara Weltman—are scheduled to expire on December 31. And, if you’re going to take advantage of them for 2013, you need to act now.
We guess there’s always a chance that Congress could extend these soon-to-expire breaks. But given recent performances and the myriad issues on the plates of members of the House and Senate, we’re not holding our breath. And neither should you. Weltman says on sba.gov's community blog that since no one knows if any or none will apply next year, business owners need to get busy, get educated and get whatever advantages you can—now.
What do small business owners need to pay most attention to and possibly act on? Between now and the end of the year, you could make decisions that could potentially mean deductions in several big areas, including capital equipment, improvements, expenses for R&D, energy efficiencies, tax-friendly investments and capital gains
First step: You might want to take the advice offered by small business owner and inc.com contributor Gene Marks: Call your accountant, invite him or her to dinner and start discussing your next moves!
In the meantime, here are several of the most appealing expiring tax breaks, according to both Weltman and Marks:
- Deductions for buying capital equipment.
If you’re looking to upgrade, replace or add equipment of all kinds, now’s the time to do it. You can deduct up to $500,000 of the cost of buying (qualified) equipment now, instead of depreciating it over a number of years. This could save you a bundle! Equipment can be new or pre-owned and the whole deduction can be taken even if you finance the equipment. Of course, there are loads of details and qualifying factors, like whether you’re profitable or not. That’s why you need to get with your account ASAP.
- Deductions for improving your facilities.
Again, there are lots of rules and details attached to how you take deductions for improvements to your workspace. If you’re even thinking about improvements, have your accountant review the rules with you. But if your improvements qualify and if they’re completed by the end of the year, the deductions you can take for this tax year are considerably larger than they will be after this. Case in point: The ‘typical’ depreciation period for improvements—39 years!—will be back in effect next year. Marks also calls out energy credits that can be a part of capital improvements.
- Tax credit for R&D expenses.
A portion of what you spend on research and development (for things like new products) may be eligible for a tax credit. It’s a complex calculation, and you’ll definitely need a CPA for this one. While this credit has been extended 14 times since it began in 1981, both Marks and Weltman say it’s a good idea to use it when you can.
There are also potential advantages to be had in areas like capital gains and investments, hiring certain workers and others, and they’re all set to expire. At the risk of being repetitive, enlist the help of your accountant now, so that if there are opportunities here for you, you’ll still have time to take the necessary action, from replacing computers to moving up the completion date for the office upgrades you’re having done. Weltman points out that a bi-partisan Congressional committee is supposed to decide by December 31 what stays and what goes. Don’t wait for these decisions, because you won’t have time to take the actions that will enable the tax savings. Today, however, just might be another story for maximizing your 2013 tax savings.