While many are discussing the significant tax impact on individuals resulting from the American Taxpayer Relief Act (ATRA), there are a several important provisions affecting businesses. Prior to January 1, 2013, when ATRA was passed, many business tax incentives were scheduled to expire. As a result of these legislative changes, many business owners will be able to continue enjoying some of the more popular tax deductions and credits beyond the end of 2012. The full effect of the new act is still being determined, but we have gathered the following points to provide a summary of some of the more significant changes.
One of the most commonly used deductions to have been extended in 2013, is Code Section 179 small business expensing. This section allows businesses to deduct up to $500,000 of equipment acquisitions in one year, with a $2 million investment limit. Without ATRA, the deduction was slated to be limited at $25,000 with a $200,000 investment limit in 2013 and forward. This very favorable provision accelerates tax savings by eliminating the need to depreciate assets slowly over a period of many years. It applies to machinery, computers, software, office furniture, and certain vehicles, among other items. Currently, this deduction is only extended through December 31, 2013.
A second important provision is the extension of 50% bonus depreciation through 2013. Bonus depreciation allows businesses to deduct half of the cost of a new asset placed in service in 2013 (only new, not used, equipment is eligible). It can be used in conjunction with the Section 179 deduction, and unlike Sec. 179, it is not subject to a dollar limit. While in some ways the bonus depreciation deduction is a bit more limited than the 179 (on types of property permitted and percentage of cost allowed to be deducted, for example), there are a few situations where bonus depreciation is a better option for businesses. Also, bonus depreciation allows you to create a net operating loss which can be carried back (creating a possible refund) or carried forward to offset future income. Thanks to ATRA, businesses will continue to enjoy the ability to utilize either or both of these deductions in 2013.
ATRA also extends the research tax credit, which expired after 2011, through 2013. This provision rewards taxpayers engaging in qualified research activities with a credit against their tax liability. It is a credit that is calculated based on the research expenditures of the business. It applies to the excess of qualified research expenditures for the tax year over the average annual qualified research expenditures measured over the four preceding years. If your business is contemplating investing in the development of new products, prototypes, patents, or processes, then the newly extended research credit could prove valuable to you in 2013.
Another taxpayer friendly law that ATRA has extended for us is the Work Opportunity Tax Credit (WOTC). The WOTC is designed to reward employers for hiring individuals from targeted groups, generally, workers who may be otherwise disadvantaged in seeking employment. The credit available is up to 40% of first-year wages, capped at $6,000. The targeted groups include, but are not limited to, disabled or unemployed veterans, people that have received the benefit of certain types of government assistance, and individuals that were formerly incarcerated. Used in conjunction with the Vow to Hire Heroes Act of 2011, the credit for hiring veterans under certain circumstances may be as high as $9,600.
These provisions could have very real impacts on the bottom line of your business. They should be taken into consideration this year on businesses decisions, as they can significantly change the after-tax cost of certain acquisitions and investments. Particularly for those items of legislation that may be expiring at the end of 2013, it is important to consider whether it might be profitable to your business to take advantage of them this year. While we have outlined a few of the larger changes for you, this is a non-exhaustive list. If you have questions about any of this new tax law, or would like more information on how it could apply to your business, please call our office at (919) 942-8700 to speak with one of our tax professionals.
About Blackman & Sloop CPAs, P.A.:
Blackman & Sloop is a full-service CPA firm headquartered in Chapel Hill, North Carolina and is actively involved in auditing, taxation, management consulting, financial planning, and related services. The firm directs a large part of its services toward providing management with advice on budgeting, forecasts, projections, financing decisions, financial analysis, and tax developments. The firm also performs review and compilation services and prepares not-for-profit, corporate, individual, estate, retirement plan, and trust tax returns as well as technology consulting services regarding installation and training on QuickBooks. Blackman & Sloop provides services in Raleigh, Durham, Chapel Hill, RTP, Hillsborough, Pittsboro, Charlotte, and the rest of North Carolina. To find out more please visit http://www.blackmansloop.com
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