Tax tactics in 2015 to offset the uncertainty of Section 179
While there are tax unknowns for the coming year, there are more certain options to help you better plan and maximize your investments. A decision won’t be made on Section 179 or bonus depreciation anytime soon, so in the meantime, CPAs Paul Neiffer, CliftonLarsonAllen, and Randy Eikermann, Eikermann and Associates, recommend discussing the following options with your tax representatives:
- Consider trading in old equipment in exchange for replacement property rather than selling the old equipment outright. Selling outright generates a recapture of depreciation previously taken on that piece of equipment. To balance the taxable gain, the deduction for the replacement property will have to be substantial.
- Be proactive and make equipment purchases before the last quarter of the year. This ensures you receive a half-year convention to apply to the first year’s depreciation calculation.
- Consider selling grain in 2015 under deferred payment contracts, get taxed on the income in 2016 and then accelerate the income into 2015 to help offset Section 179 if it reverts back to $500,000 for this year.
- Deferred payments are on a contract-by-contract basis; therefore, Neiffer suggests making smaller contracts. For example, 5,000 to 10,000 bu. contracts allow you to accelerate income in increments and not simultaneously.
- Establish a retirement plan during the year, which can be funded later (in some cases, as late as the tax filing due date). Examples include 401(k), SIMPLE or SEP plans.
Unless Congress reauthorizes the Section 179 tax deduction for 2015, the first-year write-off reverts to $25,000. After the 12-day window to act once the $500,000 was signed into effect in 2014, it’s best to move forward with as much certainty as possible.