Year-End Tax Planning Moves for Businesses and Business Owners

  • Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. And a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2014, the dollar limit will drop to $25,000, the beginning-of-phaseout amount will drop to $200,000, and expensing won’t be available for qualified real property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.
  • Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. This bonus writeoff generally won’t be available next year unless Congress acts to extend it. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.
  • Nail down a work opportunity tax credit (WOTC) by hiring qualifying workers (such as certain veterans) before the end of 2013. Under current law, the WOTC won’t be available for workers hired after this year.
  • Make qualified research expenses before the end of 2013 to claim a research credit, Businesses should consider making expenditures that qualify for the business property, which won’t be available for post-2013 expenditures unless Congress extends the credit.
  • If you are self-employed and haven’t done so yet, set up a self-employed retirement plan.
  • Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2014, and disposing of a passive activity to allow you to deduct suspended losses. If you own an interest in a partnership or S corporation you may need to increase your basis in the entity so you can deduct a loss from it for this year.

Social Security Wage Base Increases To $117,000 For 2014

The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2014 increases to $117,000 from $113,700, which was the wage base for 2013. The $3,300 increase, which is about 2.9%, is due to an increase in average total wages.
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers-one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).
For 2014, the FICA tax rate for employers is 7.65% each-6.2% for OASDI and 1.45% for HI. For 2014, an employee pays:(a) 6.2% Social Security tax on the first $117,000 of wages (maximum tax is $7,254.00 [6.2% of $117,000]), plus

(b) 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus

(c) 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).

For 2014, the self-employment tax imposed on self-employed people is:

  • 12.4% OASDI on the first $117,000 of self-employment income, for a maximum tax of $14,508.00 (12.40% of $117,000); plus
  • 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), plus
  • 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self- employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).

There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.

Nanny Tax Threshold Increases To $1,900 For 2014

The Social Security Administration has announced that for 2014, cash remuneration paid by an employer for domestic service in the employer’s private home isn’t FICA wages if the amount paid during the year is less than $1,900 (up from $1,800 for 2013). The dollar threshold applies separately to each domestic employee.

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