Member Commentary by Kevin Koehler of Baker Tilly Virchow Krause, LLP – In early January, Congress and President Obama reached an agreement to temporarily avert the so-called “fiscal cliff.” While the impact of the provisions of the American Taxpayer Relief Act of 2012 (the Act) on individuals has garnered the majority of attention, a number of the Act’s provisions will also impact businesses.
The following summarizes the Act’s key provisions that impact businesses, as well as a brief discussion of what the legislation does not address.
BUSINESS TAX PROVISIONS
Of the provisions enacted in 2009 to provide a short-term stimulus to the economy, the following were extended by the Act:
- 50 percent bonus depreciation is extended through 2013 (2014 for long-production property)
- 15-year straight-line cost recovery for qualified leasehold improvements, restaurant buildings and improvements, and retail improvements is extended through 2013
- The increased section 179 expensing amount of $500,000 is extended through 2013 and reverts to $25,000 beginning in 2014
- The reduction in the S corporation recognition period for built-in gains is extended through 2013, with a five-year recognition period rather than 10 years.
Congress has traditionally extended numerous provisions of the tax code on a one- to two-year basis. The usual list of extenders was not fully addressed by the Act. However, several tax credits were extended through Dec. 31, 2013. These include the following:
- The research credit, which provides companies with a tax credit based on the company’s investment in technology and employment within the United States, was retroactively reinstated for 2012. The requirements and rate of the tax credit are unchanged.
- The New Markets Tax Credit (NMTC) has also been retroactively extended through 2013. The NMTC program was established to spur investment into operating businesses and real estate projects located in low-income communities.
- Certain provisions of the Work Opportunity Tax Credit (WOTC), which provides incentives to employers for hiring individuals from target groups who have consistently faced barriers to employment, were extended. Because not all provisions were extended, employers should check with their legal or financial representation to determine if they are impacted.
Items not addressed
Payroll tax holiday ends. The 2 percent payroll tax holiday related to the Social Security tax for all earners up to the wage base ($113,700) was not extended. As a result, everyone’s take- home pay decreases in 2013.
Debt limit. The Act does not provide for an increase in the federal debt limit. According to Treasury Secretary Geithner, the debt limit was reached on Dec. 31 and the Treasury has approximately two months before the US would otherwise default on its obligations.
Sequestration. The Act delays for two months the across-the-board “sequestration” spending cuts. The Budget Control Act of 2011 provides for $1.2 trillion in spending cuts beginning in 2013 if Congress cannot agree on alternative proposals providing an equal amount of deficit reduction.
Because of the two-month sequestration extension and impending debt limit, we can expect calls for expanded revenue and tax reform to be included in the upcoming debates. As a result, 2013 will be another year where companies need to be mindful of their tax situation in an ever-changing environment.
For more information or any questions on this topic, please contact Kevin Koehler at firstname.lastname@example.org or 612-876-4768. MHTA invites members to submit commentary on technology and innovation best practices and breakthroughs. For more information, contact Kathy Marsh at email@example.com.