OKLA. CITY —
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 impact did the act have on businesses? What are the long-term planning implications? The Oklahoma Society of Certified Public Accountants 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 Jan. 1 that the new law did not extend a 2-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 more than $250,000.
• What about section 179 expensing? The good news is 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 also can continue taking advantage of 50 percent bonus depreciation through 2013. This applies to new assets 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 impact your 2013 purchasing decisions.
• 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 a certification from your state’s employment security agency. Companies also can continue benefiting 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.
• Did estate tax rules change? Of course, business owners also will 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 in 2013.) The top estate tax rate rose to 40 percent from 35 percent on Jan. 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.
While one fiscal cliff crisis has passed, several more are looming as sequestration begins and discussions on the federal debt ceiling also are pending, as are overall discussions on the federal budget and tax law changes, making business planning critical. For more money tips, visit www.KnowWhatCounts.org to sign up for a free e-newsletter, try out financial calculators, find a CPA with a free consultation and more.
With more than 6,500 members in public practice, industry, government and education, the OSCPA is Oklahoma’s only statewide professional association of CPAs.
THE MONEY MANAGEMENT (Dollars & Sense) columns are a joint effort of the AICPA and the Oklahoma Society of CPAs, as part of the profession’s nationwide 360 Degrees of Financial Literacy program.