2013Tax Law Expiration and Planning Opportunities

Reminder on 2013 Upcoming Tax Law Expirations
As year-end approaches, we believe it would be valuable to highlight some of the tax laws that are expiring or changing.  In some instances, you still have the opportunity to act and take advantage of them.  Some of the notable expirations, who could potentially be impacted, and possible actions to take are as follows:
Individuals

  • The itemized deduction for deducting state and local sales tax.  This would have the greatest chance to impact individuals in states without state income tax.  Most individuals in NC deduct state income tax instead of the sales tax.
  • The itemized deduction for mortgage insurance.  This could impact individuals that are paying mortgage insurance due to a less than minimal down payment on their home.   You can check with your mortgage holder to see if you could prepay some future mortgage insurance in 2013.
  • Teachers will no longer be able to easily deduct the first $250 in out-of-pocket classroom expenses.  Teachers should look at where they are for 2013 and possible needs for 2014 to see if additional 2013 expenditures make sense.
  • 2013 is the last year that North Carolina (NC) allows up to $5,000 in contributions to NC's 529 plan to be a tax deduction (for married couples).   Making the maximum contribution could save an individual $350 in NC income tax.  
  • 2013 is the last year that NC allows a portion of a retirement distribution (up to $4,000) to be tax free at the state level.

Businesses

  • The tax credits providing up to a $5,600 credit for hiring a long-term unemployed veteran and up to $9,600 for hiring a disabled veteran.  If you are going to hire one, do so before year-end.  Also be sure that the specific scenario qualifies.
  • 2013 Section 179 (accelerated) depreciation is currently limited to $500,000 on the cost of new and used equipment.  2014 Section 179 (accelerated) depreciation will be limited to $25,000.  With this change, capital intensive businesses may want to consider purchases in 2013.  However, realize that Section 179 depreciation gets your depreciation expense out of synch with your cash flow for financed equipment.
  • 2013 Bonus Depreciation allows an individual to write off 50% of new depreciable equipment placed in service.  Bonus depreciation is not available for 2014.  Again, capital intensive businesses may want to consider purchases in 2013.  However, realize that bonus depreciation gets your depreciation expense out of synch with your cash flow for financed equipment.
  • The 15 year straight line recovery for leasehold improvements and restaurant improvements expires at the end of 2013.  If you are making leasehold improvements in the near future, 2013 may be the year to do so.
  • 2013 is the last year that NC will allow an individual to exclude up to $50,000 in business income from NC taxable income.  Typical tax planning involves a deferment of income.  In this case you may want to consider whether an acceleration makes sense.

As always, let us know if you have questions about your specific situation.