The Best Tax-Planning Strategies for Small Businesses

  • By Bill Bischoff, Marketwatch
  • December 17, 2014

tax planning

Good news: you still have time to significantly reduce your 2014 business income tax bill. Here’s a digest of the best year-end tax-saving moves for small businesses.

Buy Heavy SUV, Pickup or Van
Big SUVs, pickups and vans are useful for hauling people and stuff around in your business, and they also offer major federal income tax advantages.

• Thanks to the Section 179 instant depreciation deduction privilege, you can immediately write off up to $25,000 of the cost of a new or used heavy SUV that is placed in service before the end of your business tax year that began in 2014.

• After taking advantage of the Section 179 deduction, you can follow the “regular” tax depreciation rules to write off whatever is left of the business portion of the heavy vehicle’s cost over six years, starting with this year.

• 50% first-year bonus depreciation for new (not used) vehicles expired at the end of 2013, but I expect Congress to restore this valuable break for new vehicles that are put in service before year-end. If that happens, your allowable first-year depreciation write-off for a new vehicle will be even higher.

To qualify for this beneficial tax treatment, you must buy a “heavy” vehicle, which means one with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds, and you must use the vehicle over 50% for business. You can usually find a vehicle’s GVWR on a label on the inside edge of the driver’s side door where the hinges meet the frame. First-year depreciation deductions for lighter vehicles, are much stingier. The maximum write-off is only $3,460 for new light trucks and vans (or $11,460 if first-year bonus depreciation is restored), and it is only $3,160 for new cars (or $11,160 if bonus depreciation is restored).

Juggle Income and Deductible Expenditures Through Year-End
If you run your shop as a sole proprietorship, LLC, partnership, or S corporation, your share of the net income generated by the business is reported on your Form 1040 and taxed at your personal rates. Since the 2015 individual federal income tax rate brackets are not much different from this year’s (see the tables at the end of this column), consider the time-honored strategy of deferring income into next year while accelerating deductible expenditures into this year - if you expect to be in the same or lower tax bracket next year. Deferring income and accelerating deductions will, at a minimum, postpone part of your tax bill from 2014 until 2015.

On the other hand, if your business is going great, you might expect to be in a significantly higher tax bracket in 2015 (say 35% versus 25%). In this scenario, take the opposite approach: accelerate income into this year (if possible) and postpone deductible expenditures until next year. That way, more income will be taxed at this year’s lower rate instead of at next year’s higher rate.

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