FSS Newsletter - September 2014 

TAX PLANNING FOR 2014: SEC. 179 & BONUS DEPRECIATION

Two important tax laws expired on December 31, 2013 that could affect many taxpayers in 2014:

(1) Sec. 179 expensing limits and (2) 50% bonus depreciation.

Sec. 179 Expense

Many businesses have benefitted in recent years from the substantial $500,000 Code Sec. 179 expensing limit for tangible personal property. Under Code Sec. 179, taxpayers, except trusts, estates and certain noncorporate lessors, can elect to expense (deduct in lieu of depreciation) the cost (subject to certain dollar limits) of "section 179 property." However, starting with the 2014 tax year, the maximum annual Code Sec. 179 expensing limit will drop to just $25,000.

Code Sec. 179 also includes an "investment ceiling" that reduces the expensing limit dollar-for-dollar by the amount of "section 179 property" placed in service during the year in excess of $200,000. For 2012 and 2013, the "investment ceiling" was $2,000,000.

Example

In 2014, XYZ Company placed $216,000 of equipment in service that qualified as "section 179 property." The amount is $16,000 above the $200,000 "investment ceiling." As a result, the section 179 limit of $25,000 is reduced dollar-for-dollar by the excess over the investment ceiling to $9,000.

Bonus Depreciation

For 2013, a special 50% bonus depreciation allowance was available to all businesses that purchased qualifying property in addition to the regular depreciation deduction. To qualify the asset must have been a new asset (rather than used) and have a class life of 20 years or less.

Tax Planning Strategy

Taxpayers are currently in limbo as Congress debates retroactively increasing the Sec. 179 limit and 50% bonus depreciation. Neither the House of Representatives nor the Senate have been able to agree on legislation to retroactively extend these tax provisions.

In April, the Senate Finance Committee voted to extend the provisions for 2014 and 2015 only; however, a Senate vote on the Committee's proposal subsequently failed in May. Conversely, in June, the House of Representatives passed a bill to make permanent the $500,000 Sec. 179 limit and the 50% bonus depreciation tax provisions. However, the bill is expected to stall in Congress as the Senate is unlikely to vote on any tax legislation before the November midterm elections. Many believe that the matter will not be resolved until late in the year.

Due to the Congressional uncertainty, the best approach is to take a wait-and-see approach in regards to large equipment purchases. We will keep you updated with any Congressional action for both of these provisions.

Please contact us with any questions you may have.

Sincerely yours,