{"id":16118,"date":"2015-01-07T19:29:07","date_gmt":"2015-01-08T00:29:07","guid":{"rendered":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2015\/01\/tax-act-extenders-can-help.html"},"modified":"2015-01-07T19:29:07","modified_gmt":"2015-01-08T00:29:07","slug":"tax-act-extenders-can-help","status":"publish","type":"post","link":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2015\/01\/tax-act-extenders-can-help\/","title":{"rendered":"Business Report: Tax Act ‘Extenders’ Can Help"},"content":{"rendered":"
\n
\"kevin\n<\/div>\n
Kevin Hedley is a partner with Hedley & Co., PLLC, in Clifton Park\n<\/div>\n<\/div>\n

BY KEVIN M. HEDLEY, MS, CPA, PFS<\/p>\n

“The farther backward you can look, the
\nfarther forward you are likely to see.” Winston
\nChurchill once said.
\nWe do not need to look to far back in history
\nto see what was going to transpire in
\nDecember 2014 with regard to the tax law.<\/p>\n

But not looking too far back does not allow
\nus to see too far forward either. Starting in
\nearly December and finally being resolved
\nin mid December, the House, the Senate and
\nthe President came together and enacted
\nthe Tax Increase Prevention Act of 2014.<\/p>\n

This law in many ways makes 2014 a tax
\nbased rehash of 2013 but unfortunately the
\nlaw only lasted until Dec. 31. <\/em><\/p>\n

The Tax Increase Prevention Act of 2014
\nhas extended a series of expired or expiring
\nindividual, business, and energy provisions
\nknown as “extenders.” The extenders are a
\nvaried assortment of more than 50 individual
\nand business tax deductions, tax credits,
\nand other tax-saving laws that have been on
\nthe books in one way or another for years,
\nbut are technically temporary because they
\nhave a specific end date.<\/p>\n

Congress many times has temporarily
\nextended the tax breaks for periods of one or two years, colloquially referred to as
\n“extenders.”<\/p>\n

The law, as eventually passed and signed
\nin December, retroactively reinstated these
\ntax breaks. Unfortunately, the law was
\npassed too late in the year to fully plan for
\nit and allow businesses to fully utilize the benefits provided. Despite it being around
\nfor only two weeks in 2014, your business is
\nlikely eligible to benefit from the tax provisions
\nof the law.<\/p>\n

The extended business credits and
\nspecial depreciation and expensing rules
\ninclude:<\/p>\n

The research credit, the temporary minimum
\nlow-income housing tax credit rate for
\nnonfederally subsidized new buildings; the
\nmilitary housing allowance exclusion for
\ndetermining whether a tenant in certain
\ncounties is low-income; the employer wage
\ncredit for activated military reservists; the
\nwork opportunity tax credit; three-year
\ndepreciation for racehorses.<\/p>\n

The 15-year straight line cost recovery for
\nqualified leasehold improvements, qualified
\nrestaurant buildings and improvements, and
\nqualified retail improvements; special expensing
\nrules for certain film and television
\nproductions; the deduction allowable with
\nrespect to income attributable to domestic
\nproduction activities in Puerto Rico; the
\nexclusion of 100 percent of gain on certain
\nsmall business stock; the basis adjustment
\nto stock of S corporations making charitable
\ncontributions of property; and the reduction
\nin S corporation recognition period for
\nbuilt-in gains tax.<\/p>\n

A few of the provisions which will benefit
\nmost businesses are enhancements to the
\ndepreciation rules.<\/p>\n

At the start of 2014 the rules for bonus
\ndepreciation had completely expired but
\nwith the new law the 50 percent bonus
\ndepreciation has been reinstated. Bonus
\ndepreciation allows for an additional deduction
\nwhen the asset is first purchased. For
\nexample, a 50 percent bonus depreciation
\nallowance would mean that businesses immediately
\ndeduct 50 cents of every dollar
\nspent on qualifying purchases.<\/p>\n

This provision is automatic and allows for
\nimmediate tax savings if properly utilized.
\nThe remaining 50 cents would be deducted
\naccording to regular depreciation schedules.<\/p>\n

Bonus depreciation may result in substantial
\npresent value tax savings for businesses
\nthat purchased or constructed qualified
\nproperty. Qualified purchases for the bonus
\nrules include most business equipment and
\nsoftware. Unlike Section 179 expensing, you
\ndo not need net income to take bonus depreciation
\ndeductions. Further, bonus is not
\nlimited to smaller businesses or capped at a certain dollar level, but it is not available for
\nused property. Also, many states, including
\nNew York opt out of this provision for state
\nincome tax purposes.<\/p>\n

Another popular provision of the new law
\nis Sec. 179. Essentially, Sec. 179 of the IRS
\ntax code allows businesses to deduct the full
\npurchase price of qualifying equipment and\/
\nor software purchased or financed during
\nthe tax year. That means that if you buy or
\nlease a piece of qualifying equipment, you
\ncan deduct the full purchase price from your
\ngross income.<\/p>\n

Sec. 179 can only be used when a business
\nhas net income and can only be used within
\ncertain limits. The limits are certain caps to
\nthe total amount written off ($500,000 for
\n2014), and limits to the total amount of the
\nequipment purchased ($2,000,000 in 2014).
\nThe deduction begins to phase out dollarfor-
\ndollar after $2,000,000 is spent by a given
\nbusiness, so this makes it a true small and
\nmedium-sized business deduction.<\/p>\n

If your business acquired more than
\n$2,000,000 of equipment in 2014, your ability
\nto use Sec. 179 is phased out.<\/p>\n

So what are the differences between bonus
\nand Sec. 179? Bonus can only be used
\nfor new equipment; Sec 179 may be used for
\nnew or used equipment. Bonus can be used
\neven if your company has incurred a loss in
\n2014 but Sec. 179 may only be used if there
\nis a net profit in your business.<\/p>\n

Bonus can be used by large and small
\nbusinesses alike, whereas a business spending
\nover $2,000,000 on equipment will have
\nits ability to use Sec. 179 be limited or even
\neliminated. Sec. 179 allows a business to
\nwrite off the entire purchase price of an
\nasset, yet bonus only allows a portion of the
\nassets (albeit a large portion).<\/p>\n

Also, it must be remembered that New
\nYork state does not allow bonus depreciation
\nbut does allow Sec. 179.<\/p>\n

As with any law, even those as seemingly
\nsimple as depreciation, careful planning is
\nneeded to ensure your business saves as
\nmuch tax not just in the current year but
\nalso going forward. Most of the provisions
\nin the law expired at Dec. 31 when we were
\nall watching the ball drop. Careful planning
\nis needed to effectively utilize these provisions
\nin the new yet already expired law.<\/p>\n

Hedley is a partner with Hedley & Co.,
\nPLLC, certified public accountants in Clifton
\nPark.<\/em><\/p>\n

Photo Courtesy Hedley & Co. PLLC<\/p>\n","protected":false},"excerpt":{"rendered":"

Kevin Hedley is a partner with Hedley & Co., PLLC, in Clifton Park BY KEVIN M. HEDLEY, MS, CPA, PFS “The farther backward you can look, the farther forward you are likely to see.” Winston Churchill once said. 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