Remember that year-end planning is not just for individuals. In fact, your business operation may benefit from tax moves in 2016 in the wake of several key extensions in the Protecting Americans from Tax Hikes (PATH) Act of 2015. Here are five ideas for small-business owners to consider.
1. Max out on business equipment. Thanks to the PATH Act, the maximum Section 179 “expensing” deduction for qualified business property placed in service in 2016 is $500,000, subject to a phaseout threshold of $2 million. Furthermore, your business may benefit from a 50% bonus depreciation on qualified property. (This tax break is reduced to 40% in 2018 and 30% in 2019 before expiring in 2020.) Plan equipment purchases accordingly.
2. Hire target group workers. Through 2019, the PATH Act extends the Work Opportunity Tax Credit (WOTC) for hiring workers from certain “target” groups. Generally, the WOTC is equal to 40% of first-year wages up to $6,000, for a maximum credit of $2,400 per worker. There is no limit on the number of credits your business can claim for qualified workers.
3. Fix up the premises. Generally, expenses for minor repairs you make to the business building—for example, replacing a broken windowpane—are currently deductible. Conversely, the cost of a capital improvement, such as adding a new wing to a building, is added to your basis in the property. When possible, take care of repairs before year-end. Note that new regulations issued last year address several complex issues in this area. Current deductions may be available under a special safe harbor election. Contact your professional tax adviser for more information.
4. Salvage bad debt deductions. If you are not paid amounts owed to your business, at least you may be able to salvage a deduction for debts that are “worthless.” But you must show that you have made good faith efforts to collect the debts. To secure a deduction for 2016, step up your collection activities before the end of the year. Remember to keep detailed records—including correspondence and e-mails with debtors—of your collection efforts.
5. Kick off a new venture. A special provision in the tax code allows you to deduct up to $5,000 of qualified startup expenses of a new business. Any excess must be amortized over 180 months. To qualify for the current tax write-off, the operation must be an ongoing activity, so make sure the doors are officially “open for business” before the end of the year.