The 'Extenders' Bill Has Passed, But There's Not Much Time!
You may not be thinking about taxes much during the holiday season, but EGP is here to bring you up to speed, with speed being the key word!
This week Congress passed a bill extending for one year certain tax provisions that expired at the end of 2013. The President is expected to sign the legislation later this week. The extensions are not permanent – they expire again after 12/31/14 - so the lawmakers will need to consider these again next year. Here are some of the key provisions you need to be aware of and may need to take action on before the New Year.
Accelerated/Bonus Depreciation. This provision extends 50% bonus depreciation of certain property acquired and placed in service by businesses during 2014.
Section 179 expense. If you are in business, you have to appreciate immediate expensing! Businesses can once again deduct—expense—up to $500,000 in qualifying equipment. It's a great benefit, and the limit was set to decrease from $500,000 down to $25,000 until the extenders bill passed. Writing off equipment immediately is usually far better than depreciating it over time.
Charitable Contributions. Great news for charities albeit not permanently, but at least these enhanced rules apply for 2014. The bill provides for another year of the charitable IRA rollover, where IRA owners 70-1/2 or older can exclude up to $100,000 a year from taxable income by having funds in their IRA paid directly to qualified charities. Another good piece to this is a rule facilitating charitable contributions by S corporations and an enhanced deduction for food inventory.
Small Business Stock Gain. Pay attention to this one. Selling stock usually means capital gain and these days that can mean up to 23.8% tax rate (including the 3.8% Obamacare tax). That's better than 39.6%, but still high. Selling stock and skipping taxes entirely would be nicer, and the new law allows that for certain qualified small business stock acquired after Sept. 27, 2010 and before Jan. 1, 2014. What's more, none of the excluded gain is subject to the alternative minimum tax.
S Corporation Built-In Gains. Many small businesses start out as C corporations, but then want to convert to S corporation status, since S corporations are often tax-favored. To curtail C corporations electing S status and then selling assets or liquidating, there's a tax (called a Built-In Gains tax) on S corporations that convert from C status and sell assets within 10 years. Now, some S corporations only face a 5 year gauntlet, not 10. The new law extends this benefit through 2014.
State Taxes. For many of our clients, the most important federal deduction is the one for state income taxes paid. In lieu of this, some taxpayers have benefited more in the past from deducting state and local sales taxes. This deduction was set to expire but has now been extended for 2014.
Some other key provisions that have been extended include the Research & Development Tax Credit, New Markets Tax Credit, Higher Education Deduction, Teachers' Classroom Expense Deduction, Mortgage Insurance Premium Deduction, and the Mortgage Debt Exclusion. We will be glad to provide you with further information about any of these key areas.
We realize all this information at once can be confusing, but it's important we keep you updated on pressing tax law issues. Please contact your EGP tax professional for further information. Working together, we can help you get the most of this new law and help you take maximum advantage for your situation.
