What Small Businesses Need to Know About the Fiscal Cliff Tax Deal

Read about how American Taxpayer Relief Act of 2012 will affect your small business's taxes in 2013.

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The fiscal cliff tax deal approved by Congress has several provisions of special interest to small business. These haven't gotten much publicity, but they could be quite important to you.

Section 179 Expensing Limits Increased

For most small businesses, the most important change brought about by the fiscal cliff tax bill is an increase in the value of business equipment that can be expensed (deducted) in one year under Internal Revenue Code Section 179. The Section 179 limit was scheduled to go down to $25,000 in 2013. However, the new law allows up to $500,000 in business equipment to be expensed in 2013. This provision has also been made retroactive for all of 2012. Businesses with income up to $2 million per year qualify for Section 179 expensing for these years.

Taxpayers may also expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. The treatment of computer software as property eligible for Section 179 treatment is extended through tax years beginning in 2013.

These Section 179 limits are scheduled to expire at the end of 2013. Starting in 2014, the limit is scheduled to go down to a $25,000 investment limit with a $200,000 income limit.

50% Bonus Depreciation Extended

In an attempt to prevent the economy from entering a recession, Congress revised the tax laws in early 2008 to give businesses the opportunity to take substantial depreciation deductions during the first year they buy long-term property. This special depreciation deduction is called bonus depreciation. By using bonus depreciation, a taxpayer can depreciate 50% of the adjusted basis of qualified property during the first year the property is placed in service; the remaining basis in the property is depreciated under the normal depreciation rules. Bonus depreciation was scheduled to expire at the end of 2012. It has now been extended through 2013.

Employer-Provided Mass Transit Benefits

Employers may provide their employees with tax-free payments for mass transit use and parking expenses. The fiscal cliff bill extends through 2013 the increase in the monthly tax-free limit for employer-provided transit and vanpool benefits from $125 to $240. This way it is the same as for employer-provided parking benefits.

Work Opportunity Credit

This bill extends for two years, through 2013, a provision that allows businesses to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to new hires in of one of eight targeted groups. These groups include members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified ex-felons, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients, and long-term family assistance recipients.

Returning Heroes and Wounded Warriors Work Opportunity Tax Credits

The fiscal cliff bill extended through the end of 2013 provisions allowing businesses to claim a work opportunity tax credit for hiring qualified veterans in the following targeted groups and up to the following credit amounts:

  • Veterans in a family receiving supplemental nutrition assistance: $2,400
  • Short-term unemployed veterans: $2,400
  • Service-related disabled veterans discharged from active duty within a year: $4,800
  • Long-term unemployed veterans: $5,600
  • Long-term unemployed service-related disabled veterans: $9,600

January 2013

by: , J.D.

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