As the calendar winds down on 2015, thoughts naturally turn to holiday cheer, plans to ring in a new year – and taxes. Now is the time to start getting that financial house in order and take advantage of any additional tax savings still to be had this calendar year.
One of the best pieces of advice is to work with an experienced CPA or tax preparer who also understands the self-storage business. “You have to have someone who knows all of the tax laws and changes that have occurred,” said Andy Shobert, vice president of administration for Universal Storage Group in Columbia, SC.
Deduct the halls
To that point, there is an extender package that is expected to be voted on in Congress before year-end that will have some tax implications for business owners, such as allowing for higher caps on enhanced or “bonus” depreciation where taxpayers are allowed to deduct an extra 50 percent on shorter life depreciated property. The 179 deduction, which relates to the ability to expense assets such as a company vehicle, also would be enhanced and extended.
“There are 52 extenders, and we expect that all of them will be extended for another year,” said Dudley Ryan, CPA, JD, a principal at CliftonLarsonAllen LLP in Minneapolis
Write off doors and cameras separately
Another new provision passed in November expands the threshold on “de minimis” property or small dollar items as current deductions. Previously, business owners could deduct amounts up to $500 without question from the IRS. In November, the IRS increased that threshold to $2,500. One of the requirements to that is a business would have to claim the same deduction for financial accounting purposes as for tax purposes, notes Nathan Clark, CPA, a tax senior director at BDO in Charlotte.
De minimis deductions are intended to cover any type of property or equipment that might usually be covered as a depreciating item. For example, it could apply to the purchase of new roll-up doors or security cameras. As long as each individual item is less than $2,500, then each can be deducted separately. So, if an owner replaces one security camera that costs $1,000, or even 100 cameras, each would be permissible as a deduction that would not be questioned by the IRS.
Another caveat to this deduction is that a business has to have a policy in place at the beginning of the year. So, businesses will want to create a clearly documented policy starting in January in order to capture those deductions in 2016. “I think that is going to be huge for a lot of businesses going forward,” said Clark.
Think about the future
Another sound piece of advice is to take overall financial objectives into account when doing tax planning. Some business owners might be looking to make the most of expenses to reduce tax bills, while others might be motivated to defer expenses and boost net operating income, particularly if they are considering a property sale or refinancing.
“To most small business owners, tax is a relatively important part of their live, but we always encourage people to make the right economic decisions, and tax is just a component of that,” said Ryan.
Year-end Tax Check-List
- Make necessary purchases related to equipment and repairs by year-end so those deductions can be applied to the 2015 tax return.
- Gather your documents, receipts and other statements to provide to your accountant or tax preparer in early January so that you are not scrambling around in February or March before the filing due date.
- Think ahead. Keep up to date on reconciliations of bank accounts, as well as you mortgage to make sure that your mortgage balance agrees with your statement.
- Avoid penalties. Depending on the business structure, it may be important to assess an operator’s income for the year to make sure that all of the necessary pre-tax payments have been made to avoid incurring any underpayment penalties.
- Consider establishing a tax-deferred retirement plan, such as a 401(k). Most retirement plans have to be established by the end of the year, even though they don’t have to be funded until 2016.