Capitalize or Deduct? IRS Offers Simpler Rules

The tax law allows businesses to deduct ordinary and necessary expenses, including the costs of repairs and maintenance. However, amounts paid to acquire and improve buildings, equipment, and other tangible property must be capitalized and generally are deducted over time through depreciation. Reconciling the two rules has been difficult for many businesses. To help clarify how the rules apply, the IRS issued final regulations in 2013 for application beginning in the 2014 tax year. De minimis Safe Harbor The regulations include a safe harbor rule that allows eligible businesses to treat as “de minimis” (and therefore currently deductible) certain expenditures … Continue reading

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Generous Energy Credits Available to Individuals and Businesses Through 2016

Conserving energy is a priority for many taxpayers. There are generous federal income-tax credits available to individuals and businesses that can help defray some of the cost of buying and installing certain energy efficient systems. Individuals The residential energy efficient property (REEP) credit is a tax credit of up to 30% of the expenses paid for solar electric, solar hot water, geothermal heat pump, small wind energy, and fuel cell property. In the case of fuel cell property, there is an additional cap on the credit of $500 for each half kilowatt of capacity. To qualify for the credit, the … Continue reading

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IRS Reduces Filing Requirements for Small Businesses Complying with Tangible Property Regulations

The IRS has announced that, for 2014, it will allow qualifying small businesses to account for tangible property on a go-forward basis for that year and without filing Form 3115. Essentially, the new rule makes it easier for small businesses to adopt the new tangible property regulations made effective for 2014. Background In 2013, the IRS issued long-awaited and wide-ranging final regulations concerning the proper method of accounting for the acquisition, maintenance, and improvement of tangible property. In 2014, the IRS issued additional final regulations regarding dispositions of tangible property. The new regulations will require many taxpayers to change their … Continue reading

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Does Your Expense Reimbursement Plan Meet IRS Requirements?

Any employer reimbursing its employees for business-related expenses should consider whether the reimbursement arrangement meets the IRS’s requirements for an “accountable plan.” Meeting these requirements avoids the need to include the expense payments in employees’ gross income and avoids the employer’s share of any payroll taxes that otherwise would be due on the payments. General Requirements An accountable plan must meet several requirements. One is that the expense must have a “business connection,” meaning it must be allowable as a deduction and paid or incurred by the employee while performing services as an employee. Also, the employee must adequately account … Continue reading

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2015 Contribution Limits for Retirement Accounts

The IRS has announced the 2015 contribution limits for both employer-sponsored plans and individual retirement accounts (IRAs). Increased limits may provide individuals and businesses with opportunities for additional tax savings in the coming year. Employer-sponsored Plans 401(k), 403(b), and most 457 plans. In 2015, employees may defer up to $18,000 in earnings (up from $17,500 in 2014). For those 50 and older, the limit on supplemental “catch-up” contributions has increased from $5,500 to $6,000. Defined contribution plans. The dollar limit on “annual additions” (generally, combined contributions of the employee and employer) to a participant’s account in a defined contribution plan, … Continue reading

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