Don’t Fall Off This Cliff
By Darren Finn
Another cliff is looming for small businesses, and it is not the one you might think. As we come to the close of 2013 and Washington still cannot determine what bills to pay and how to pay them, Congress looks to stick small business owners with the tab in 2014. Several key tax provisions are set to expire at year-end that will have a significant impact on companies’ cash flow. In no particular order:
- Expensing fixed asset additions will drop from $500,000 to $25,000 in 2014 (Sec. 179 expensing)
- Bonus depreciation of 50% of the cost for eligible new assets ends in 2013
- Research and Experimentation tax credit is to set to expire at the end of 2013
These tax laws have been important to small business owners during this recession as a means to increase cash flows and limit federal taxes. With little more than three months to go until the year ends and little to no action or attention from Congress, it once again appears that small business owners will be facing an uncertain business environment and a bigger tax bill.
What is to be done? Speaking with your elected representative is a good idea. Better yet, plan in advance and accelerate potential capital expenditures into 2013. Proactively work with your accountant to get the most favorable classification and treatment for assets that are in your “construction in progress” account that will be placed in service in the future. Make sure your business is keeping timely records documenting your research and development activities to maximize potential tax credits in 2013 that can be carried forward. This will protect the value of these credits even if they cannot be used in the current year.
Some of these provisions may return in 2014, but it is increasingly difficult to get clarity into which laws may be revived, when, and in what form. With looming changes in health care and tax rates it is easy to overlook the impact of older laws expiring. Now is the time to prepare for 2014.