Mission Impossible? Last Minute Tax Planning for 2013

While the concept of “tax extenders” is debated by economists and policy wonks, the real fact is that certain provisions of our tax code have for years been written with a self-destruct code imbedded in them.  The reasons for this vary, but the main one is that a budget cannot be balanced without plugging in “sunset” dates for some of these more generous provisions of the code – known as “tax expenditures”.

One example of a tax expenditure is the Section 179 “expensing” provision that allows businesses to deduct, rather than depreciate equipment purchases up to a certain threshold.  In 2013, this threshold is, generally, $500,000, but drops to a mere $25,000 in 2014.  The purpose for the high immediate expensing was to give “small” businesses a tax benefit for investing in equipment, providing in theory a stimulating effect on the economy.

If you are in the mood to do last minute tax planning, here is a brief list of some of the more popular 2013 expiring provisions:

Business Provisions:

• Section 179 deduction – drops to $25,000 from $500,000 after 2103.
• 50% bonus depreciation – no longer available after 2013 except for certain long-period property and aircraft.
• Qualified Leasehold Improvements – depreciable life goes to 39 years in 2014, from 15 years.
• Section 179 deduction for certain qualified real property – the 179 deduction of up to $250,000 for qualified leasehold improvements, restaurant property, and retail property is gone after 2013.
• Research credit – expires after 2013.

Individual provisions:

• Direct charitable contributions from an IRA – no longer permitted after 2013.
• Sales tax deduction – no longer available after 2013.
• Tuition and fees deduction – expires after 2013.
• Cancellation of Debt – the exclusion of up to $2 million of COD income from a qualified principal residence is no longer available after 2013.

Of course, Congress could still act in early January to restore some or all of the expiring provisions, as it might do with the unemployment benefits that have now also expired for the long-term unemployed.  To be on the safe side, though, if any of these provision affect you or your business, this might be a good day to do a little shopping.

And remember that each of these provisions, very briefly summarized above, are actually quite complex, so it’s a good idea to check with your tax professional before taking action to make sure that you qualify for the deductions in question.