The American Taxpayer Relief Act of 2012 resolved most of the tax issues that were a part of last year’s “fiscal cliff” debates and answered many pending tax questions for small businesses. The act will have an effect on businesses and long-term planning implications, so the Pennsylvania Institute of Certified Public Accountants offers this update to answer some of the most common questions.
Are There Changes in Payroll Taxes?
Immediately after Jan. 1, 2013, the new law did not extend the temporary 2 percent reduction in the employees’ portion of the Social Security payroll tax. That increase, which is not related to the new law, returns the tax to 6.2 percent on income up to $113,700 in 2013. In addition, there is a 0.9 percent Medicare surtax on certain taxpayers who earn in excess of $250,000.
What about Section 179 Expensing?
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 deductions 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 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 the details.
What Credits Are Available?
Company owners are 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 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?
On the list of preserved items is the 15-year recovery period for qualified leasehold improvements, qualified retail improvements, and qualified restaurant property, which were 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?
Business owners should also be interested in the act’s impact 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 Jan. 1, 2013, but that is 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.
Your CPA Can Help
While one fiscal crisis has passed, several more are looming. Discussions on the federal debt ceiling are pending, as are the debates on the federal budget and tax law changes. Business planning is critical, so turn to your local CPA for understandable and practical advice on the best available tax-planning choices. To find a CPA in Pennsylvania by location and area of expertise, or for more tax resources, visit www.picpa.org/taxhelp.