2014 Tax Extenders (Federal)

On Tuesday, December 16th, the Senate passed H.R.5771 to extend several expired tax provisions. The extension is retroactive from January 1, 2014, through the end of the 2014 tax year with minimal changes to the prior tax provisions.

Examples of extended provisions are as follows. Note that California does not conform to the same federal provisions listed below. Please contact us for more information.

• Bonus Depreciation & §179D Expensing provisions – Extended through Dec 31, 2014
  This extension allows taxpayers to claim a 50% first-year bonus depreciation deduction for qualified property placed in service before January 1, 2015 (January 1, 2016, for certain property). The Section 179 limit is $500,000 for 2014 with a $2 million investment limit. (California maximum deduction is $25,000)How this applies to your business: for assets purchased such as equipment and furniture, you could deduct the cost paid in the year purchased rather than deducting the cost as a deduction over the period of its useful life. Note the section 179 deduction is limited to total business income.

• 15-year Life for Qualified Restaurant Property & Qualified Leasehold Improvements – Extended through Dec 31, 2014
  This extension applies to qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service in 2014. Taxpayers can elect to treat up to $250,000 of these Qualified Improvements as Section 179 property. Qualified restaurant property is any section 1250 property (i.e. building or improvement to a building) placed in service after December 31, 2008, and before January 1, 2015 in which more than 50% of the building’s square footage must be devoted to the preparation of meals and seating for on-premises consumption of prepared meals. An example would be as follows: a full-service restaurant spends $200,000 on installing new floors. The business can elect to treat this as 15-year property with the full amount qualifying for section 179 expensing.

  Building Improvements will only qualify for the 50% bonus depreciation deduction if they are considered to be “Qualified Leasehold Improvements.” Qualified leasehold improvement property is an improvement to an interior portion of a building which is nonresidential real property if — (i) such improvement is made under or pursuant to a lease (I) by the lessee (or any sublessee) of such portion, or (II) by the lessor of such portion, (ii) such portion is to be occupied exclusively by the lessee (or any sublessee) of such portion, and (iii) such improvement is placed in service more than 3 years after the date the building was first placed in service. Certain improvements are not included. Such term shall not include any improvement for which the expenditure is attributable to— (i) the enlargement of the building, (ii) any elevator or escalator, (iii) any structural component benefiting a common area, and (iv) the internal structural framework of the building.

• Work Opportunity Tax Credit (“WOTC”)
  WOTC is a Federal tax credit available to employers who hire and retain veterans and individuals from other target groups with significant barriers to employment. Employers can generally get a tax credit equal to 25% or 40% of a new employee’s first-year wages, up to the maximum for the target group to which the employee belongs.

California Tax Credits – 2014

• California Competes Tax Credit
  The California Competes Tax Credit is an income tax credit available to businesses that want to come to California or stay and grow in California. Tax credit agreements will be negotiated by GO-Biz and approved by a statutorily created “California Competes Tax Credit Committee,” consisting of the State Treasurer, the Director of the Department of Finance, the Director of GO-Biz, one appointee each by the Speaker of the Assembly and Senate Committee on Rules. For the fiscal year 2014-15, GO-Biz will accept applications for the California Competes Tax Credit during the following periods:
  • January 5, 2015, through February 2, 2015 ($75 million available)
  • March 09, 2015, through April 6, 2015 ($31.1 million available plus any unallocated amounts from the previous application periods)

• New Employment Credit
  Beginning with the 2014 tax year, a nonrefundable credit against corporation franchise and income and personal income taxes is available to qualified employers that hire qualified full-time employees to work in a designated census tract or economic development area (EDA) provided the taxpayer pays qualified wages and satisfies other procedural requirements. A designated census tract” is a census tract determined by the Department of Finance to be in the top 25% of California census tracts in terms of civilian unemployment and poverty rates. For purposes of this credit, “economic development areas” are specified former enterprise zones or LAMBRAs. (Sec. 23626(b)(7) and (8), Rev. & Tax. Code). A map and search tool with all of the designated census tracts and economic development areas is available on the FTB’s website at: maps.gis.ca.gov/gobiz/dga/.