BONUS DEPRECIATION AND ENHANCED §179 EXPENSING EXTENDED TO 2015 AND BEYOND

179 Expensing Election of $500,000; phase out starts when equipment purchases exceed $2,000,000.
50% Bonus depreciation for factory new equipment

In a welcome display of good governance, Congress this year has largely broken its recent routine of allowing important tax incentives to expire with the start of each new year, only to retroactively reinstate those provisions as year-end approaches—leaving taxpayers during the interim on tenterhooks, guessing what tax laws they will be subject to.

IRS PASSIVE ACTIVITY RULES: PROVING THE TIME DEDICATED IN YOUR BUSINESS

All tax practitioners are aware how unyielding the tax code can be to those who lack sufficient planning and learn of the law’s arcane requirements only after the fact. One recent tax court case re-affirming this lesson is Williams v. Commissioner, TC Memo 2014-158 (August 2014), where a taxpayer lost out on deductions from his aircraft business due to his failure to provide the court with sufficient proof of his day-to-day work.

UNDERSTANDING AND PLANNING FOR TAX RISKS OF OVERLAPPING LOAN GUARANTIES

When a financed aircraft is owned in a special-purpose company, which lacks assets other than the aircraft, it is typical and understandable for the financing bank to insist that, in order to extend this special-purpose company a loan to purchase the aircraft, that loan must be guarantied by another, more solvent person or company. In fact, banks will often seek multiple, overlapping guaranties—for example, from both spouses a couple, or from an individual and another company owned by that individual.

KEY TAX EXPOSURE AREA: PASSIVE ACTIVITY PROTECT YOURSELF WITH PROPERLY FILED ELECTIONS

A notable milestone in the cat-and-mouse game of individuals seeking to minimize tax burden and Congress making new laws to end potential shelter activity is the Passive Activity Rule, which was originally enacted as part of the Tax Reform Act of 1986, and which recent developments have brought prominently to the minds of tax advisors. In particular, an important one-time opportunity to avoid being trapped under this rule arises from new IRS regulations issued in November 2013 due to the new net-investment income tax passed as part of the 2010 Patient Protection and Affordable Care Act (a/k/a “Obamacare”).

TAX DEDUCTION OF BUSINESS AIRCRAFT 2014 UPDATE

Tax Depreciation of General Aviation Aircraft

Businesses throughout the country routinely make use of general aviation aircraft to provide travel and communication efficiencies that provide them with an important competitive advantage. As part of a general Congressional approach to encourage business investments, the Tax Code allows a rapid depreciation schedule for aircraft that allows owners to fully write-off purchase/acquisition costs over a period of time (usually five year) that is far less than the economic life of an aircraft.