The last major tax legislation was the Protecting Americans from Tax Hikes (PATH) Act of 2015, which was mentioned in the February 2017 blog. The PATH Act either permanently extended or made provisions for temporary extension of many of the popular business tax provisions, including: bonus depreciation, section 179 expensing, 15-year depreciation for qualified leasehold improvement property, 100% gain exclusion from sale of qualified small business stock, and the 5-year recognition period for built-in gains of S-corporations. The major tax reform efforts that are underway could lead to elimination or modification of certain tax benefits like these, however at this time in 2017 they are still in play.
Here are some year-end tax strategies to consider and discuss with your tax advisor:
- Deferring income and accelerating deductions to minimize 2017 taxes. This approach may prove to be especially valuable if Congress enacts tax reform that reduces tax rates and limits or eliminates certain deductions in 2018.
- Watch out for the alternative minimum tax (AMT). A decision to accelerate an expense or defer income for regular tax purposes may not save taxes if the taxpayer is subject to AMT.
- $510,000 section 179 expensing on the purchase of qualified new or used property (i.e. - furniture, equipment, off-the-shelf computer software, qualified real property, etc.) placed into service during 2017, with phase-out beginning at $2,030,000.
- 50% bonus depreciation on the purchase of qualified property. Qualified property generally includes new tangible personal property, off-the-shelf computer software, and qualified improvement property placed in service in 2017.
- Electing the annual deminimis safe harbor election, which allows businesses to deduct expenses for tangible property that they would have otherwise had to capitalize. For businesses with audited financial statements, the de minimis safe harbor threshold is $5,000 per item or invoice. For businesses without audited financial statements, the threshold is $2,500.
- Increase basis in your S-corporation or partnership to allow utilization of suspended 2017 loss deductions.
- Pay expenses with a credit card before year-end to increase deductions with no cash outflows until the following year.
When working on year-end tax planning it is important to look at your particular situation and planning goals, while minimizing income taxes where possible. Many tax strategies must be implemented before year-end to be effective in mitigating your 2017 tax liabilities, so strategize with your tax advisor now.
The timeline for comprehensive tax reform is unclear, so steer away from entering into any major transactions based on what the new tax law might be. Focus on what is known now.