- BUY EQUIPMENT (Section 179 Deduction): Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2016, the expensing limit is $500,000 and the investment ceiling limit is $2,010,000. Expensing is generally available for most depreciable property (other than buildings), off-the-shelf computer software, and qualified real property—qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. A note about vehicles; The deduction is limited for most types of passenger vehicles. Only the business use % of the total deduction is allowed. Finally, if the business use % drops below 50% in the subsequent year, you may be subject to recapture.
- BONUS DEPRECIATION: Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. The bonus depreciation deduction is permitted without any proration based on the length of time that an asset is in service during the tax year. As a result, the full 50% first-year bonus write-off is available even if qualifying assets are in service for only a few days in 2016.
- CATERGORIZE EXPENSES CORRECTLY: Businesses may be able to take advantage of the “de minimis safe harbor election” (also known as the book-tax conformity election) to expense the costs of lower-cost assets and materials and supplies, assuming the costs don't have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, can't exceed $2,500. If you are already our client, you’ve made this election so only purchases of items that cost more than $2,500 need to be capitalized on the balance sheet.
- DEFER INCOME: A corporation should consider accelerating income from 2017 to 2016 if it will be in a higher bracket next year. Conversely, it should consider deferring income until 2017 if it will be in a higher bracket this year.
- DPAD: If your business qualifies for the domestic production activities deduction (DPAD) for its 2016 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2016 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2016, even if the business has a fiscal year.
- BASIS FOR LOSSES: If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.
- SE HEALTH INSURANCE: If you operate as an S-Corp, be sure to properly report >2% shareholder insurance premiums to be sure that you are able to deduct the Self-Employed health insurance deduction on your personal tax return. Contact our office if you need advice on how to ensure you get this deduction.
2016 Year end tax planning for individuals