Maximize Your Business’s 2017 Tax Savings: Claim All the Breaks You’re Entitled to When Filing Your Return
Here are a few areas to examine.
Fixed asset purchases
You can expense up to $510,000 in qualified fixed assets and equipment purchased and placed in service in 2017. These include a wide range of assets such as computers, software, office furniture, and heating and air conditioning units.
Known as Section 179 expensing, this strategy may offer significant tax advantages relative to depreciation. By writing off fixed assets during the year in which they’re placed in service, you’ll realize a larger deduction during the early years of ownership. However, the Sec. 179 expensing deduction phases out on a dollar-for-dollar basis once your 2017 asset purchases reach $2.03 million.
You also may benefit from bonus depreciation on qualifying property purchased and placed in service in 2017. Specifically, bonus depreciation is available for new Modified Accelerated Cost Recovery System (MACRS) property with a recovery period under 20 years. Bonus depreciation applies to 50% of the cost of qualifying property purchased and placed in service in 2017.
Domestic production activities
If your company performs manufacturing activities domestically, you might be able to take advantage of the Sec. 199 deduction. Also known as the domestic production activities deduction (DPAD), it’s intended to boost manufacturing activity and employment here at home. You may qualify for the Sec. 199 deduction if your business performed any of the following activities domestically in 2017:
- Building and construction,
- Electricity, potable water or natural gas production,
- Film and video production (if at least 50% is done in the United States),
- Architectural or engineering services for domestic construction projects, and
- Tangible personal property production (except land and buildings).
The Sec. 199 deduction is equal to 9% of the lesser of qualified production activities income or taxable income. It’s capped at 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.
The research credit
The research credit (often referred to as the “research and development” credit) is frequently overlooked because businesses mistakenly believe it’s available only to tech or research firms. But a wide range of business activities can qualify for this valuable tax break.
Among the expenses that typically qualify are salaries paid to employees working on research-related activities, fees paid to contractors, and supplies used when performing certain activities.
Up to 9.1% of eligible research expenses can be applied dollar-for-dollar against federal income tax liability.
If your company had less than $5 million in gross receipts and owes little or no income tax for 2017, you may be eligible to use the research credit to offset up to $250,000 in payroll taxes.
The Work Opportunity credit
If your business hired members of certain targeted groups during 2017, you might qualify to claim the Work Opportunity Tax Credit (WOTC) on your 2017 return. These groups include certain veterans, ex-felons, and recipients of food stamps and long-term unemployment benefits, among others. The size of the credit depends on the targeted group, hours worked and wages paid.
But you must have obtained certification that an individual was a member of the targeted group and file Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” with their respective state workforce agency within 28 days after the eligible worker starts work. (Contact your CPA or your individual state workforce agency for more information.)
Keep an eye on tax reform
Tax reform legislation could affect some of these breaks. Contact your tax advisor for the latest information.
Last-minute deduction: Make retirement plan contributions
Even when the calendar has turned to 2018, you might still be able to take steps to lower your 2017 tax bill beyond simply claiming all the breaks you can. For example, if you offer a 401(k), Simplified Employee Pension (SEP) or profit-sharing plan, you have until your 2017 tax-filing deadline to make deductible contributions to employee accounts. With a SEP, you can even set up the plan in 2018 and still make 2017 contributions.
Depending on your business entity type, the tax-filing deadline for calendar year 2017 is March 15 (S corporations, partnerships and multimember limited liability companies, or LLCs) or April 17, 2018 (C corporations, sole proprietorships and single-member LLCs treated as disregarded entities), unless you receive an extension. Contributing to your employees’ retirement plans can be a smart way to help them save for retirement while getting a last-minute business tax deduction.