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Year-End Tax Planning for Businesses

By: Tax Hotline
Fall 2019 (Vol. 37, No. 3)

Businesses using the cash method of accounting can defer income into 2020 by delaying end-of-year invoices, so payment is not received until 2020. Businesses using the accrual method can defer income by postponing delivery of goods or services until January 2020.

TAKE ADVANTAGE OF SECTION 179 EXPENSING. In 2019 businesses can elect to immediately deduct the entire cost of most new equipment up to a maximum of $1.02 million for the first $2.55 million of property placed in service by December 31, 2019. The deduction cannot exceed net taxable business income and is phased out dollar for dollar on amounts exceeding the $2.55 million threshold and eliminated above amounts exceeding $3.57 million.

This also applies to interior improvements made to nonresidential real property after the date when the property was first placed in service in taxable years beginning after December 31, 2017.

Exclusions are:

  • The enlargement of the building.

  • Any elevator or escalator.

  • The internal structural framework of the building.

  • Roofs, HVAC, fire protection systems, alarm systems and security systems.

Businesses are also allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017 and before January 1, 2023. Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business.

Small business employers with 25 or fewer fulltime- equivalent employees with average annual wages of $50,000 indexed for inflation (e.g., $54,200 in 2019) may qualify for a tax credit to help pay for employees’ health insurance. The credit is 50 percent (35 percent for nonprofits).

Business energy investment tax credits are still available for eligible systems including geothermal electric, large wind and solar energy systems used to generate electricity, to heat, cool, or to provide hot water for use in a structure, or to provide solar process heat. Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible; however, passive solar and solar pool-heating systems are excluded.

Where possible, end of year repairs and expenses should be deducted immediately, rather than capitalized and depreciated. Small businesses lacking applicable financial statements (AFS) can take advantage of de minimis safe harbor by electing to deduct smaller purchases ($2,500 or less per purchase or per invoice). Businesses with applicable financial statements can deduct $5,000. Small businesses with gross receipts of $10 million or less can also take advantage of safe harbor for repairs, maintenance, and improvements to eligible buildings.

With the Qualified Business Income deduction, non-corporations may be entitled to a deduction of up to 20 percent of their qualified business income from a qualified trade or business. To take advantage of the deduction, taxable income must be under $160,700 ($321,400 for joint returns).

Depreciation limits changes for luxury passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn’t claim bonus depreciation, the maximum allowable depreciation deduction is $10,000 for the first year. For passenger autos eligible for the additional bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000. It applies to new and used vehicles acquired and placed in service after September 27, 2017. When combined with the increased depreciation allowance above, the deduction amounts to as much as $18,000.

Heavy vehicles including pickup trucks, vans, and SUVs whose gross vehicle weight rating (GVWR) is more than 6,000 pounds are treated as transportation equipment instead of passenger vehicles. Heavy vehicles (new or used) placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100 percent first-year bonus depreciation deduction as well. Deductions are based on a percentage of business use.

Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2019.

Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders.