With the year-end fast approaching, many individuals and business owners are often left scrambling to take actions to reduce or eliminate income taxes they may need to pay. There are many significant tax changes to consider in year-end tax planning tips and strategies to consider. Of significant importance are the many of the previous tax relief provisions that are set to expire. Here are just a few:
Mortgage Debt Interest Cancellation
You may have made a bad investment in your home. Perhaps your home is worth less now than what you owe. In some cases, you simply cannot afford to continue to make the payments on your mortgage debt and are facing foreclosure. If losing your home was not bad enough, you may be taxed on debt relief you receive. Beginning January 2014, the tax relief provisions for the taxes imposed on the cancellation of indebtedness of your primary residence are scheduled to expire.
Mortgage Insurance Premiums Deduction
Where you may have financed your home with a low down payment, your lender generally requires you to insure the payments of mortgage insurance as part of your loan agreement. For taxpayers with adjusted gross income of $109,000 or less, the premium payments were previously deductible. Beginning January 2014, these tax deductions are no longer available.
State and Local Tax Deductions
Taxpayers that itemize their tax deductions receive tax deductions for mortgage interest, property taxes paid, contributions to charity and more which also included the deduction of state and local sales taxes in lieu of deducting state income taxes. Where you reside in a state that does not have state income taxes, you would previously generally deduct an estimation of, or the sales taxes you paid. Beginning January 2014, these tax deductions are no longer available.
Personal Energy Property Credit
You may have made certain qualifying, energy efficient improvements to your home. Perhaps you replaced your windows, exterior doors, purchased energy efficient appliances, etc. You may have received a tax credit for these improvements made prior to 2013.
Qualified Leasehold, Restaurant and Retail Improvement Property Depreciation
Previously, small businesses could take an escalated depreciation deduction for certain qualifying property over a 15-year life. Beginning January 2014, your deduction for property improvements are often limited to the standard 39-year, commercial property depreciation.
Expensing Election – Section 179
Perhaps, one of the largest tax incentives available to small businesses was the ability to deduct amounts you paid for new business equipment on the day you paid for it. Previously, small businesses could often expense the purchase o f new business property purchases up to $500,000 subject to certain limitations. Beginning January 2014, the deduction is now limited to $25,000 where amounts spent in excess of this amount must generally be depreciated ratably over several years.
Special (Bonus) Depreciation
Similar to the (Section 179) expensing election, small businesses could previously write-off up to half (50%) of qualifying asset purchases in the year of acquisition. Beginning January 2014, most of the benefits previously afforded by bonus depreciation are no longer available.
Qualifying Real Property
Real property includes qualifying leasehold improvements, restaurant property and retail improvements. Businesses could previously claim the Section 179 deduction on up to $250,000 of qualified real property. Beginning January 2014, qualifying real property is no longer eligible for the expensing (Section 179) deduction.
Other Expiring Tax Credits
Other expiring tax credits include the credit for health insurance costs of eligible individuals, tax credit for research and experimentation expenses, the Work Opportunity Tax Credit, above the line deduction for elementary and secondary school teachers, the special rules for qualified small business stock, S corporations basis adjustment for charitable contributions of property, the reduction in S corporation recognition period for built-in gains tax, certain empowerment zone tax incentives and more.
If you haven’t already, perhaps the time is now to meet with us to review how these changes may effect you.