Tax Tip Tuesday: Year End Business Tax Planning Tips
December 11, 2018
As 2018 comes to a close, it’s time to talk about year-end planning information for businesses.
Eligible businesses should consider making purchases that qualify for section 179 deduction (the liberalized business property expensing option).
For tax years beginning in 2018, the expensing limit is $1,000,000, and the investment ceiling limit is $2,500,000. Note that the expensing break is limited to the amount of taxable income (as specially computed) from all of the taxpayer’s active trades or businesses. Also, these limits only apply to federal as Iowa only allows $70,000 of section 179 deduction for 2018.
Expensing is generally available for most depreciable property (other than buildings), and off-the-shelf computer software. For property placed in service in tax years beginning in 2018, expensing also is available for qualified improvement property, roofs, HVAC, fire protection, alarm, and security systems. This is generally for any interior improvement to a building's interior, but not for enlargement of a building, elevators or escalators, or the internal structural framework.
The generous dollar ceilings that apply this year mean that many small and medium-sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment.
What's more, the expensing deduction is not prorated for the time that the asset is in service during the year. The fact that the expensing deduction may be claimed in full (if a business is otherwise eligible to take it) regardless of how long the property is held during the year can be a potent tool for year-end tax planning. Thus, property acquired and placed in service in the last days of 2018, rather than at the beginning of 2019, can result in a full expensing deduction for 2018.
Disclaimer: The items included in the Tax Tip Tuesday Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.