Business tax breaks disappeared for 2014
The conclusion of 2013 also brought the end of 55 tax breaks, many of which relate to your small business.
Congress can still renew any or all of these breaks (and even make them retroactive), but it’s likely that Congress will want to see how the economy reacts to this year’s events before considering that action. Many experts expect decisions on renewing tax breaks to come during fourth quarter 2014.
My best advice is to plan according to your company’s needs, save for capital asset purchases, and see what happens at year end. Check with your tax professional sometime during the summer to see which way the winds are blowing and to see what other tax planning steps can be taken to minimize your tax liability in the event these provisions are not renewed.
Business Tax Breaks
Since these are two of the most popular tax reduction provisions available to small business, tax planning will therefore be a challenge during 2014.
Section 179 reduced to $25,000 from $500,000
One of the biggest tax planning tools that expired is the Section 179 deduction. This code section allows for a business to expense the purchase of new or used capital assets such as machinery, equipment, furniture, vehicles and fixtures to name a few, in the year of purchase rather than depreciate them over their useful lives. The American Taxpayer Relief Act of 2012 (ATRA ’12) extended the $500,000 expense limit beginning in 2012 and 2013.
When this provision expired at the end of 2013, it reverted back to 1986 tax law when the deduction was first introduced. This means that if Congress doesn’t take action, for 2014 and later years, the total amount that a business can expense via Section 179 will be $25,000.
50% Bonus Depreciation not extended
A tax provision for bonus depreciation also expired on Dec. 31, 2013. Bonus depreciation came into effect in 2008 and allows a business owner to write off 50% of the cost of capital assets. Bonus depreciation applies only to the purchase of new capital assets. Used items must be depreciated over their useful lives or expensed through Section 179.
When using bonus depreciation, there is no limit as to the amount of money the business can spend on capital asset purchases. And if the use of bonus depreciation creates a loss for the business, you are entitled to enjoy it against other income.
Depreciation Limits for Vehicles Placed in Service in 2014 Projected
Working with the “new cars” and “new trucks”. These projections indicated that the depreciation caps for passenger automobiles will remain the same as in 2013; while the limits for trucks and vans will rise slightly.
Bonus depreciation increases the first-year vehicle allowance by a not-insignificant $8,000. What action Congress will take remains uncertain at this time.
2014 Depreciation Caps
The projected luxury auto depreciation limits under Code Sec. 280F for passenger automobiles placed in service in 2014 are:
- $3,160 for the first year, the same as for 2013 ($11,160 for 2014, same as for 2013, only if Congress extends bonus depreciation into 2014);
- $5,100 for the second tax year, the same as for 2013;
- $3,050 for the third tax year, the same as for 2013; and
- $1,875 for each tax year thereafter, the same as for 2013.
Calling these depreciation caps “luxury” depreciation limits is a bit of a misnomer. While the original intention of the limits may have been to curb depreciation on high-priced “executive” vehicles, generally the math under the tax code works out that the depreciation on vehicles priced over $16,000 (trucks and vans over $17,300) are now subject to the cap; and vehicles of lesser value must claim depreciation lower than those caps.
Trucks and Vans
The projected maximum depreciation limits under Code Sec. 280F for trucks and vans first placed in service during the 2014 calendar year are:
- $3,460 for 2014, up from $3,360 for 2013 ($11,460 if bonus depreciation is extended);
- $5,500 for the second tax year, up from $5,400 for 2013;
- $3,350 for the third tax year, up from $3,250 for 2013; and
- $1,975 for each tax year thereafter, the same as for 2013.
Trucks and vans are defined as passenger automobiles built on a truck chassis, including minivans and sport utility vehicles (SUVs) built on a truck chassis. Such vehicles with a gross weight of more than 6,000 pounds, however, generally are not subject to the “luxury” depreciation limits. However, that exemption is limited to $25,000.
