The American Taxpayer Relief Act of 2012 resolved most of the tax issues included in last year's fiscal cliff debate and answered many pending tax questions for small businesses.
What effect did the act have on businesses? What are the long-term planning implications? The California Society of CPAs (www.calfpa.org) offers an update that answers these questions and more.
Are There Changes In Payroll Taxes?
As a business owner, you may have noticed immediately after January 1 that the new law did not extend a two-percentage-point reduction in the employees' portion of the Social Security payroll tax. That tax, which is not related to the new law, returns to 6.2 percent on income up to $113,700 in 2013. In addition, there is a .9 percent Medicare surtax on certain taxpayers that earn in excess of $250,000.
What About Section 179 Expensing?
The good news is that the law does extend a number of valuable small business provisions, including small business expensing under Internal Revenue Code Section 179, through 2013 and retroactive to the beginning of 2012. The deduction can be used for purchases of a wide range of new and used capital equipment, including software, from both last year and this year. The dollar limit that can be expensed in 2012 and 2013 is $500,000, with a $2 million investment limit.
There is some uncertainty in this area going forward, since the expensing and investment limits are set to drop significantly in 2014. Your CPA can offer advice on the best steps for your business.
Can I Still Use Bonus Depreciation?
Small companies can also continue to take advantage of 50 percent bonus depreciation through 2013. This applies to new assets that are expected to last 20 years or less. It is possible to apply Section 179 and 50 percent on the same asset, but some limitations do apply. In addition, since this option also expires at the end of the year, it may affect your 2013 purchasing decisions. Ask your CPA for all the details.
What Credits Are Available?
Company owners are also still eligible for several credits. The Work Opportunity Tax Credit, for example, is available through 2013 to those who hire workers from specific groups, including qualified veterans. (To receive the credit, you must have a certification from your state's employment security agency.)
Companies can also continue to benefit from the Section 41 research tax credit, which can be applied to increased research activities, through the end of 2013.
Are There Any Other Incentives?
Also on the list of items preserved is the 15-year recovery period for qualified leasehold improvements, qualified retail improvements and qualified restaurant property, which was extended until the end of 2013. The 100 percent exclusion for gains on a sale of small business stock can be used through the end of this year.
In addition, the special tax incentives for empowerment zones and rules on S corporations making charitable donations of property remain in force.
Were There Changes To Estate Tax Rules?
Of course, business owners will also be interested in the act's effect on individual taxes. Of particular interest may be the permanent retention of the existing estate and gift tax exclusion, which was held at an inflation-adjusted $5 million. (That translates to $5.12 million in 2012 and $5.25 million this year.)
The top estate tax rate rose to 40 percent from 35 percent on January 1, 2013, but that was much lower than the 55 percent it was set to reach-with a $1 million exclusion amount-if the act had not been passed. On another front, the estate tax portability election, which allows a surviving spouse to use a deceased spouse's unused exemption amount, has been made permanent.
Since the estate tax rates and exclusion amounts could change as early as next year, talk to your CPA about the best ways to plan for a smooth succession in the midst of uncertainty.
Your CPA Can Help
While one fiscal cliff crisis has passed, several more are looming as the decision on sequestration was deferred and discussions on the federal debt ceiling are also pending, as are overall discussions on the federal budget and tax law changes, making business planning critical. Turn to your local CPA for understandable and practical advice on your best tax planning choices.