A tax planning question we often hear is: "I have a Schedule C business I report directly on my individual Form 1040. As I approach the end of the year, what are some tax planning ideas to save income taxes for 2013?" Let's answer that question.
Tax planning can be complex due to the ever changing tax laws introduced each year. However, some fundamentals remain the same even as taxes, credits and deductions are modified. A few ideas for you:
- If your business is on the cash basis, you can postpone income until 2014 and accelerate expenses into 2013 to lower your 2013 tax liability. Besides reducing your tax liability, you may also increase other credits and deductions.
- If you need to purchase business equipment, it may be wise to do so in 2013 instead of waiting until next year. Certain depreciation tax breaks are set to expire at December 31, 2013. Therefore, you may want to buy fixed assets in 2013 vs. 2014, as you may not get as much benefit for the purchase next year:
- Section 179 fast depreciation is presently allowed up to $500,000, but will decrease to $25,000 for 2014.
- 50% Bonus Depreciation for new first-year property will be eliminated in 2014.
As with all tax planning, the best way to save taxes is to have level income over the years and to avoid spikes in income or losses.
Through proper year-end planning, we can help you determine the best strategy for you. Please contact us at (616)642-9467 if you have any questions regarding your tax situation.
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