Year-End and Fixed Asset Purchases

As year-end is approaching, are you facing big profits and big taxes?  With December 31 getting closer, one of the right moves before the end of the tax year can be purchasing fixed assets.  Assets put in use by December 31 can be expensed through Section 179 instead of being depreciated over a number of years.  For 2013, firms can expense up to $500,000 of assets put in use during the year (sorry, cars with under a 6,000 gross loaded weight, buildings and many leasehold improvements do not qualify).  Both new and used assets are eligible for this break.  Unless Congress acts, the ceiling for Section 179 assets in 2014 will be around $150,000.

Certain assets that were not expensed through the Section 179 deduction have 50% bonus depreciation which is set to expire after 2013.  Businesses using this deduction can write off one-half of the cost of new (used assets do not qualify) assets with useful lives of 20 years or less.  Leasehold improvements made to the interiors of commercial buildings are eligible too.  The other half of the cost is recovered via regular depreciation.

A new 6000 lb SUV put in use during 2013 allows you to deduct much of the cost in 2013.  Say your business pays $52,000 for a new SUV with a gross vehicle weight over 6,000 lbs, it works like this.  You can expense $25,000 for the cap for SUVs.  Half of the remaining $27,000 cost, or $13,500, is bonus depreciation.  Twenty percent of the remaining $13,500, or $2700, is taken as normal depreciation.  So $41,200 of the $52,000 cost is deductible in 2013.

Pickup trucks with loaded weights over 6,000 pounds can be fully expensed as long as the bed is at least six feet long.  For lighter vehicles, the maximum deduction in the first year is $11,160.

Having said all that, I don't condone making fixed asset purchases solely to reduce taxes.  There should a solid business reason to purchase the fixed asset in addition to the tax savings.

The US Government Shutdown And The IRS

The IRS is predicting a delay in the start of the tax filing season by up to two weeks from January 21 to as long as February 4.  They are testing new procedures to detect identity theft and help prevent refund fraud and since they were on furlough for two weeks it sets back the testing two weeks.  You don't think it could be that they are pissed at Congress for the shutdown do you?  In December, the IRS will announce the official starting date.

In addition to the delay in the start date of 2013 tax filing season, the IRS is saying it will not issue refunds as quickly as in years past because of the anti-identity-theft controls it's implementing.  The IRS has not announced about how much longer it will take to get a refund.

If you mailed any correspondence to the IRS during the government shutdown, don't hold your breath.  The IRS Service Center was swamped, receiving an estimated 400,000 pieces of correspondence during the furlough, many of which were unopened.  It will be quite a while before the IRS gets caught up.  So anyone that sent in documentation in the last month to the IRS should not expect any resolution soon.

Between budget cuts and the furlough, customer service has taken a big hit at the IRS.  None of us mind if they don't have time to do as many audits, but the phone hold times are the worst I have seen in my 21 years of dealing with the IRS and it's taking a very long time to get issues resolved with the IRS.