ATRA 2012 for Businesses

ATRA 2012 for Businesses
On January 2, President Obama signed the American Taxpayer Relief Act of 2012 into law. The Act provides many business incentives aimed at stimulating the economy. The two biggest incentives that may affect you are the increased expensing allowance and the increased bonus depreciation provisions.

For tax years beginning in 2012 and 2013, you can now expense up to $500,000 of qualified property placed into service in those years (i.e., the Section 179 deduction). Under prior law, the amount you could expense for 2012 and 2013 was $139,000 and $25,000, respectively. In addition, the total amount of property that you can place into service before having to reduce your Section 179 deduction has been increased to $2,000,000 for 2012 and 2013. With respect to the amounts that may be expensed, the new law allows you to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

As you know, businesses can recover the cost of capital expenditures over time through depreciation. Before 2012, you were entitled to take 100 percent bonus depreciation for investments placed in service after September 8, 2010 and before 2012 and 50 percent bonus depreciation for investments placed in service during 2012. This provision was scheduled to end after 2012. However, the Act extends the 50 percent expensing provision for qualifying property purchased and placed in service before January 1, 2014 (before January 1, 2015, for certain longer-lived and transportation assets) and also allows you to elect to accelerate some AMT credits in lieu of taking the bonus depreciation.

Numerous other favorable tax incentives were extended under the new law. The following is a list of some of the tax provisions that were extended through 2013:

(1) the tax credit for research and experimentation expenses;

(2) the new markets tax credit;

(3) employer wage credit for activated military reservists;

(4) the work opportunity tax credit;

(5) the three-year depreciation for race horses two years old or younger;

(6) the 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;

(7) the seven-year recovery period for motorsports entertainment complexes;

(8) the rule for adjusting stock of an S corporation making charitable contributions of property;

(9) the reduction of the recognition period for the built-in gains of S corporations;

(10) the 100 percent exclusion from gross income of gain from the sale or exchange of certain small business stock;

(11) the 9 percent low-income housing tax credit rate for newly constructed non-federally subsidized buildings;

(12) the deduction for contributions of food inventory by taxpayers other than C corporations;

(13) tax incentives for investment in empowerment zones;

(14) the deduction for income attributable to domestic production activities in Puerto Rico;

(15) tax rules relating to payments between related foreign corporations;

(16) rules for the tax treatment of certain dividends of regulated investment companies (RICs); and

(17) the subpart F income exemption for income derived in the active conduct of a banking, finance, or insurance business.

As you can see, the provisions in the American Taxpayer Relief Act of 2012 are quite extensive. Please call me at your earliest convenience so we can discuss how to best leverage these provisions to the advantage of your business.

Courtesy: Parker Tax Pro Library: January 17, 2013 - Executive Editor at Parker Tax Publishing

*CIRCULAR 230 DISCLOSURE: Pursuant to Regulations Governing Practice Before the Internal Revenue Service, any tax advice contained herein is not intended or written to be used and cannot be used by a taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.