FISCAL CLIFF AVERTED: 2012 TAXPAYER RELIEF ACT IMPACT ON BUSINESS

As everyone has heard the past several days, the “Fiscal Cliff” has been averted with the passing of The American Taxpayer Relief Act of 2012.  You’ve read so far about how individuals were impacted but what about businesses?  Below is a listing of the some of the key developments from the act which will affect businesses in the next few years:

Additional First Year (Bonus) Depreciation:  Bonus depreciation has been extended for qualified property acquired and placed in service prior to January 1, 2014.  Qualified property is generally assets that fall under the MACRS system, have a recovery period of 20 years or less, and are purchased new by the taxpayer.

First Year Auto and Truck Depreciation Increased by $8,000:  The applicable first year depreciation is increased by $8,000 in 2013 for passenger autos that are qualified property under the bonus depreciation rules and are not subject to an election to decline bonus depreciation.  This means that a taxpayer is allowed an additional $8,000 depreciation deduction on top of the normal first year limit.

Increased 179 Expense: The maximum expense amount under section 179 is retroactively increased from $139,000 to $500,000 starting with the 2012 tax year and will extend to the 2013 tax year.  Additionally, the investment based phase-out for the 2012 and 2013 tax years has been set at $2,000,000.  After 2013 the maximum section 179 expense and investment based phase-out will drop to $25,000 and $200,000 respectively.

15 Year Write-off for Qualified Property:  The 15 year write-off period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property has been retroactively extended for two years.  All qualified property has to be placed in service before January 1, 2014.

Extension of Work Opportunity Credit:  The credit is extended so it applies to eligible veterans and nonveterans that started work before January 1, 2014.  This credit allows employers who hire members of targeted groups to claim a credit against income tax based on a percentage of first year wages.  It is generally limited to $6,000 per qualified employee but can be as high as $24,000 in some instances.

Differential Wage Payment Credit:  The credit has been retroactively extended for two years for differential wages paid through December 31, 2013.  Differential wages are payments to employees for the periods they are called to active duty with the United States uniformed services.  Eligible small businesses can claim a credit for the lesser of 20% of the differential wages per employee or $20,000.

100% Gain Exclusion on Certain Small Business Stock:  The gain exclusion has been retroactively extended for 2 years through December 31, 2014 on the disposition of small business stock acquired after September 27, 2010 and before January 1, 2014.

The 2012 Taxpayer Relief Act was an extensive piece of legislation which made some significant changes.  Please feel free to contact me at bottner@bbpca.com or 301-272-6000 if you would like to know more about how your business may be affected.

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