With the recent passage of the American Taxpayer Relief Act of 2012, many of our clients are asking us what tax changes they should be aware of and how these changes will affect them. While we recently shared an overview of the 2013 tax changes affecting individuals, Congress also extended several popular business tax benefits that were set to expire. Here’s a look at some of the new tax provisions affecting businesses:
Business Asset Expensing
- Section 179 Deduction. The Act extends Section 179 small business asset expensing through 2013. The Section 179 deduction is available for most new and used capital equipment and also includes certain software. For tax years 2012 and 2013, businesses can expense up to $500,000 of qualifying purchases with a $2 million investment limit. In addition, the Act includes a two-year extension of Section 179 expensing of up to $250,000 for qualifying leasehold improvements, restaurant property, and retail improvement property through 2013.
- Bonus Depreciation. The 50% bonus depreciation is extended through 2013; some transportation and longer production property is eligible through 2014. Qualifying property includes most new equipment that is depreciable under the Modified Accelerated Cost Recovery System (MACRS) with a depreciation period of 20 years or less. Original use of the property must begin with the taxpayer claiming the bonus depreciation, and the property must be placed into service during the tax year.
- Cost Recovery Periods. The Act extends through 2013 the 15-year cost recovery period for qualified leasehold improvements, restaurant property and retail improvement property.
R&D Tax Credit
Congress extended the research and development tax credit retroactive to January 1, 2012. Businesses can claim the incremental credit for increases in business-related, qualified research expenditures. Companies developing new or improved products or outsourcing product testing may be eligible.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is extended through 2013. Employers who hire veterans and other individuals from certain target groups who face barriers to employment are eligible for a credit with a maximum range from $2,400 to $9,600, depending on the employee hired.
Other Business Tax Benefits
Congress also extended the following business tax provisions through 2013:
- The 100% exclusion for gains on a sale of small business stock
- Special tax incentives for businesses located in empowerment zones
- Rules on S corporations making charitable donations of property
Dennis Fitzpatrick, J.D., is a tax principal at Kaufman, Rossin’s Miami office. Kaufman, Rossin & Co. is one of the top CPA firms in the country. Dennis can be reached at firstname.lastname@example.org.