By: Sally P. Schreiber Recommended By: Meyer T. Wolman, CPA
As we enter the final quarter of the calendar year, Congress, as usual, has been unable to pass tax extenders for
expired tax breaks. But there are still things taxpayers can do this year.
At the end of every year, it seems, taxpayers wait anxiously for Congress to enact extensions
of popular business tax breaks, and every year Congress waits to act until what seems like the
last possible moment. Last year, the extenders were passed in December; the legislation
extended more than 50 provisions retroactively, but, in most cases, those extensions expired
again at the end of 2014. The year before, Congress acted even later, waiting until January
2014 to extend provisions for 2013.
Currently expired business tax breaks include Sec. 168 bonus first-year depreciation;
increased limits for Sec. 179 expensing; and the Sec. 41 research and development credit.
At this point, it is still unclear when, or if, Congress will act to extend these expired provisions,
but there are a number of steps business taxpayers can take to reduce taxes, even without
those expired items.
Generally, to reduce 2015 taxes, businesses will want to accelerate deductions into this year
and delay income until next year. Here are some suggestions to offer business clients to do
Deferring income to 2016
Cash-method businesses that want to defer income should consider delaying the sending of
late-in-the-year invoices, so payment is not received until 2016.
Accrual-method businesses should, if possible, hold off on providing goods or services to
customers until after Jan. 1.
Accrual-method taxpayers that are paid in advance may be able to take advantage of deferred
payment rules under Rev. Procs. 2004-34 and 2011-18 in certain situations. When an accrual-method
taxpayer receives payment before the taxpayer delivers the goods or performs the
services generating that payment, the taxpayer can defer recognizing that revenue for tax
purposes until the next tax year if the payments are reported as deferred revenue on the
taxpayer’s financial statements or (if the taxpayer doesn’t generate financial statements) if
earned in the later year. Note that, to adopt this treatment, the taxpayer must file Form 3115,
Application for Change in Accounting Method.
Accelerating and maximizing deductions
Business taxpayers should be looking to maximize deductions and depreciation. The first step
is to identify purchases and money that can be spent on deductible expenses, such as
equipment repair, this year instead of waiting until 2016.
Cash-method businesses should consider paying bonuses before year end. Accrual-method
taxpayers can also possibly deduct bonus payments made to unrelated employees within 2 1/2
months of year-end. However, for these bonus payments after year-end to be deductible in
2015, the liability to pay the bonus must be fixed and determinable by the end of the year.
Businesses should, as much as possible, try to make as many of their expenses deductible
rather than capitalizable and should take advantage of the opportunity under Sec. 179 to
currently deduct expenses for purchases of tangible property. This can be beneficial, even
though the Sec. 179 limits are lower this year (currently the maximum amount that can be
deducted under Sec. 179 is $25,000 and the expensing amount is reduced, dollar for dollar,
when the amount of Sec. 179 property placed in service exceeds $200,000).
If a portion of an asset was replaced during the year (e.g. the roof of a building was replaced),
a business should consider making a partial disposition election. Under the election, the
replacement of the portion of the asset is treated as a partial disposition of the asset, allowing
the business to recognize a loss on the disposition of that portion of the asset.
Absent the retroactive increase in the Sec. 179 deduction for the purchase of business
property, businesses can still take advantage of some favorable provisions in the repair
First, businesses should try take advantage of the tangible property regulations’ de minimis
safe harbor. Small businesses (without applicable financial statements) can take advantage of
the annual election to deduct small purchases of $500 or less per invoice or per purchase.
Businesses with applicable financial statements can deduct purchases of up to $5,000 each.
Small business (those with average gross receipts of less than $10 million) can also take
advantage of safe harbor for repairs, maintenance, or improvements to eligible buildings
(buildings with an unadjusted basis of less than $1 million). Under the safe harbor, expenses
for repairs, maintenance, or improvements to an eligible building are currently deductible if
their cost does not exceed the lesser of $10,000 or 2% of the building’s unadjusted basis.
For more on taking advantage of the Sec. 179 expensing and the tangible property regulations,
see Sellner, “The Interaction Between Sec. 179 and the Repair Regs.
html)” 45 The Tax Adviser 596 (August 2015).
To maximize depreciation, businesses should purchase supplies and equipment in 2015, but
the timing of acquisitions is key. The new assets must be placed in service in 2015 to qualify
for depreciation in 2015, and businesses should watch out for triggering the mid-quarter
convention, which will reduce the amount of the 2015 depreciation deductions for assets
purchased late in the year. The mid-quarter convention will apply if more than 40% of the
year’s purchases are in the last three months of the year.
Business should also look to harvest losses, checking for the availability of deductions for
business bad debts, casualty and theft losses, and losses on the sale of business assets.
S corporation shareholders who anticipate that the S corporation will pass through losses to
them this year should ensure that they have sufficient basis to deduct the losses. If they don’t,
they should consider making a loan to the S corp. to increase their bases.
Affordable Care Act benefits and burdens for small businesses
A small employer should consider whether it qualifies for the Sec. 45R credit to help pay for its
employees’ health insurance premiums. An employer qualifies for a Sec. 45R credit as a
“qualified small employer” if it has 25 or fewer FTEs whose average annual wages are less
than $50,000. The credit is 50% (35% for not-for-profits) of the amount of the premiums, but
there is a steep phaseout as average annual wages increase between $25,000 and $50,000
(with inflation-adjusted cutoffs of $25,800 and $51,600, respectively, for 2015) and/or average
FTEs increase between 10 and 25.
Eligible employers can claim this credit only for two consecutive tax years by filing Form 8941,
Credit for Small Employer Health Insurance Premiums, in the first tax year in which the
employer offers one or more qualified health plans to its employees through an exchange.
Another provision of the health care law that small businesses should be aware of is the Sec.
4980D penalty on certain employer payment plans, which the IRS abated for taxpayers that
are not applicable large employers (i.e., employers that did not employ an average of 50 fulltime
employees during the preceding calendar year) until June 2015. Under Sec. 4980D,
employer payment plans generally are considered to fail the market reform requirements of the
health care law and are subject to a $100 per day excise tax per employee. The IRS has not
yet abated the penalty for the rest of 2015 for non-ALE employers. This penalty can quickly
add up to hurt a small employer, so any company not yet in compliance should act fast.
Other business benefits
Businesses with U.S. manufacturing activities can take the Sec. 199 domestic production
activities deduction. Under Sec. 199(b)(1), the amount of the domestic production activities
deduction allowed for any tax year cannot exceed 50% of the taxpayer’s W-2 wages for the tax
year that are allocable to domestic production gross receipts. W-2 wages are defined, for any
person for that person’s tax year, as the sum of amounts described in Secs. 6051(a)(3) and (8)
(the total wages subject to income tax withholding and deferred compensation) paid by that
person for the employment of employees by that person during the calendar year ending
during that tax year. Businesses should consider accelerating salaries or bonuses that would
be attributable to domestic production gross receipts into the last quarter of 2015 to increase
the amount of this deduction.
Keep an eye on Congress
Figuring out if and when Congress will get around to passing the 2015 tax extenders is a
guessing game at this point. The Senate Finance Committee acted in July with a package of
the usual temporary extenders, but the House of Representatives is not on board and wants to
pass permanent provisions. Taxpayers should still pay attention so they can act in the unlikely
event that something happens before the end of the year and take advantage of any provision
that has been extended.
—Sally P. Schreiber (email@example.com (mailto:firstname.lastname@example.org) is a Tax Insider
Meyer T. Wolman, CPA is a Director in the Tax Department of Ellin & Tucker and heads the Real Estate Division of the firm. In addition to his work with real estate clients, Meyer is also a member of the firm’s Health Care Services and the Estate Tax Planning and Compliance Groups. He has extensive tax planning, compliance, and consultation experience in numerous industries, including real estate development and management, health care, construction, investment management, advertising, legal, manufacturing, wholesale distribution, retail, auto dealerships, vehicle and equipment leasing, and professional service organizations. As a trusted advisor with a wealth of tax knowledge, Meyer is a valuable resource to high net worth individuals regarding planning for income, gift and estate taxes, and wealth transfers. Additionally, Meyer has represented businesses before Federal and state agencies in matters pertaining to income taxes, sales and use taxes, and personal property taxes.