It seems like with the close of each year, there are a number of tax incentives that are expiring and may or may not be extended. Here are three expiring tax incentives for businesses that, if applicable, should be utilized this year before they ride off into the sunset. This is assuming that Congress does not extend them at the 11th hour.
Section 179 Depreciation
Section 179 depreciation allows certain purchased assets to be fully depreciated in the first year of operation with a maximum deduction/depreciation of $500,000. This is limited to asset purchases under $2 million. The section 179 depreciation deduction will decrease to $25,000 in 2014. In order to receive the full benefit of this deduction, the assets purchased must be placed into service in 2013. Purchasing assets in 2013, but not placing them into service until 2014 will not count towards 2013. If your business was considering making a large asset purchase, it would be beneficial to make that purchase and place that asset into service in 2013 to receive this additional deduction.
First Year Bonus Depreciation
Similar to the Section 179 depreciation, assets purchased over $2 million can take advantage of a first year bonus depreciation of 50% of the purchased asset. Unlike the Section 179 depreciation, this bonus depreciation completely goes away in 2014. Assets purchased must be placed into service in 2013 to take advantage of this bonus depreciation.
Shortened Built-in-Gains Period for S Corporations
If your business was a C-Corporation that later converted to an S-Corporation, you are aware that if you sold your business within 10 years of making the S-Corp election, you would be subject to the built in gains tax. In last year’s round of tax extensions, Congress extended the provision that if your business was already into its sixth year of the 10 year built in gains window that you could sell your business in 2013 and not be subject to the built in gains tax. This will expire at the end of the year and therefore not be available in 2014.
These three expiring tax incentives could be extended again if Congress acts to do so. However, it is not a guarantee that this will occur. If your business has the ability to take advantage of these expiring tax incentives in 2013, it may very well make sense to do so and not rely on Congress to extend these incentives again. If you have questions regarding these expiring tax incentives, please contact us and we will be glad to help you.