Tips for the Upcoming Tax Season
With the holiday season well behind us, and spring just around the corner, it’s the time of year that many Americans have come to dread. That’s right, it’s tax time. With an always shifting tax landscape, it can be difficult to know if you’re missing crucial credits or deductions that could mean big savings for you or your business. However, tax season does not have to be painful. With the right plan, anyone can rest easy when April 15th comes around. Here are a few areas that you should keep your eye on this coming tax season.
Green Building Tax Incentives
A Section 179D Energy Efficient Commercial Building Deduction is available for taxpayers who build or renovate a commercial building. The building must meet certain standards in energy efficiency as set forth in IRS guidance. The property must be placed in service between January 1, 2006 and December 31, 2016 and will have to be inspected by a qualifying individual. The deduction is equal to the lesser of the improvement costs or $1.80 per square foot for installation of 3 key areas: 1)Interior lighting, 2)Heating and cooling systems, or 3)The building envelope. A partial deduction is available if, for example, you only meet the energy efficiency standards for only one of the three key areas listed above.
A Section 45L Energy Efficient Dwelling Unit Tax Credit is available to taxpayers who build apartments, condo developments, and other home builders. The building needs to be three or less stories to qualify for this tax credit. The property must be placed in service between January 1, 2006 and December 31, 2016 and will have to be inspected by a qualifying individual. The nonrefundable credit is part of the general business credits. The deduction is $2,000 per housing unit. You can amend past returns to retroactively claim the credit.
The Section 179 Election gives the taxpayer the ability to expense 100% of assets up to a dollar limitation, $500,000 for 2016. You can take Section 179 on both new and used property acquired during the year. The total amount deductible is limited when the cost of property placed in service during the year exceeds $2,010,000. Eligible property is tangible property and computer software bought off the shelf. There is a limit of $25,000 for a deduction in any year for the cost of certain vehicles. (IRC Sec 179)
Bonus Depreciation provides the taxpayer the opportunity to expense 50% of the total cost of new property in 2016 and 2017. This percentage drops to 40% in 2018 and 30% in 2019. You must elect out if you do not want to claim bonus depreciation on new property acquired during a tax year. Qualified property is property with a recovery period of 20 years or less according to IRS guidance..
When the taxpayer is able to demonstrate certain personal losses are the result of fire, storm, or other casualty (IRC 165(c)(3)), they may be eligible to deduct a Casualty Loss on their tax return . The loss is calculated as the Lesser of 1) The basis in the property before the casualty event or 2) The decrease in the Fair Market Value of the property as a result in the casualty event. This amount is then reduced by any insurance settlements received.
After a reduction of $100 the deduction is then limited to the amount exceeding 10% of the taxpayer’s adjusted gross income. Ordinarily the losses are deductible in the year the loss was sustained. If the loss occurred in an area determined to be a federally declared disaster area receiving federal assistance, then you are able to make an election to deduct the loss in the year immediately before.
Business casualty loses occur when causality losses are suffered on income generating property. In this case, the business is able to deduct the loss without the same thresholds imposed on personal losses.
Losses for personal and business are reported on Form 4684.
You should speak with a tax professional about these and any other credits or deductions that you may be considering. As part of the tax team at WebsterRogers we are accessible to meet with you and provide more understanding of anything discussed in this article. WebsterRogers LLP is a leading South Carolina-based accounting and consulting firm that provides a broad spectrum of assurance, tax and advisory services to our clients. Founded in 1984 on the principles of quality, integrity and dedication to client service, our success is directly related to our strong commitment to both our people and our clients. WebsterRogers offers the degree of personal attention, responsiveness and accessibility our clients expect and deserve—coupled with national resources that can satisfy their needs.
Alison joined WebsterRogers in January 2010. She is a graduate of the University of South Carolina with a Bachelor of Science in Business Administration and holds a Master’s of Accountancy degree with emphasis in taxation also from the University of South Carolina. Alison is a member of the South Carolina Association of Certified Public Accountants and the American Institute of Certified Public Accountants. She is married to Clay Swaggard, a local attorney, and together they have one son, Sam. They reside together in Florence.