Merry Christmas taxpayers. Lawmakers in Washington have finally made a move to pass several tax extenders that have been hanging in limbo since the big crystal ball last dropped at 12:00:01 on January 1, 2014. So now that these tax breaks have been extended, what does that mean for taxpayers? Of course there are many aspects to these extenders, as there were more than 50 different provisions included in the bill, but let’s take a look at some of the most important aspects that will have the greatest impact on businesses and high net worth individuals.
Tax Provisions for Businesses
Several of the newly extended tax provisions will provide a big boost for businesses. The following are some of the most important:
- Section 179 Expense – Thanks to the tax provisions business owners got a couple of huge gifts from the government in regards to the Section 179 deduction. The qualifying limit on any equipment or software purchased throughout 2014 will remain at $500,000. It would have been only $25,000 without the extension. The bonus depreciation also remains at 50 percent for the 2014 tax year.
- Research Credit – This is great for businesses because it’s a credit, which is even better than a deduction. It can even be worth as much as 20 percent of many types of payments, including employee wages.
- S Corporation Built-In gains – although S corporations are often preferred, many small businesses are set up as C corporations, which are often taxed similarly to partnerships. In order to dissuade C corporations from choosing S status and then liquidating or selling their assets, there is a tax on any C corporation that takes on S status and sells its assets inside of a 10-year period. The new bill extends a law that drops that time period to only five years instead of 10.
- Personal Holding Redefined – the definition of “personal holding company income” has been changed in order to exclude the dividends received by U.S. shareholders from controlled foreign corporations.
Tax Provisions for High Net Worth Individuals
Businesses and companies weren’t the only ones who received good news. There were several provisions that will be good for high net worth individuals as well, including the following:
- Small Business Stock Gain – when you sell stock you usually receive a capital gain, which be can taxed as much as 23.8 percent. Skipping out on taxes completely when selling a stock would be great. The good news is that some small business stock that is acquired before January 1, 2015 and after September 27, 2010 is indeed tax-free. Another bonus, the excluded gain is not subject to the AMT.
- Charitable Contributions – For the wealthy that like to make large charitable donations to incur a nice deduction, there is another year of the charitable IRA rollover. It only applies to those IRA owners who are 70-1/2 or older, but those individuals can exclude up to $100,000 a year when they pay certain pubic charities directly from their IRA funds.
- Racehorse deduction – for those who own thoroughbred racehorses Section 168 allows for certain racehorses to be classified as three-year property.
Contact Us; We Can Help
If you need help reviewing and deciphering any of these latest tax provisions, then give GROCO a call today at 1-877-CPA-2006 and we can help you understand how the affect you and how you can use them to maximize your return. Or just click here to get in touch with us online.