THIS fiscal cliff legislation includes lots of tax changes; accordingly, I summarized the provisions for simple reading. Last week’s Part A dealt with individuals while this week’s Part B deals with business. Business depreciation and cost recovery provisions 50% Bonus Depreciation extended The Act extends the 50% first-year bonus depreciation for an additional year to cover qualifying new (not used) assets that are placed in service in 2013. The placed-in-service deadline is extended to 12/31/14 for certain assets that have longer production periods. Under the extended deadline privilege, only the portion of a qualifying asset’s basis that is allocable to costs incurred before 1/1/14 is eligible for 50% bonus depreciation. For a new passenger auto or light truck that is subject to the luxury auto depreciation limitations, the 50% bonus depreciation provision increases the maximum first-year depreciation deduction by $8,000. Generous Section 179 Deduction Rules extended and Qualifying Real Estate Expenditures are again eligible The Act restores the maximum Section 179 deduction to $500,000 for qualifying assets placed in service in tax years beginning in 2012 and 2013, (same as for tax years beginning in 2011). Without this change, maximum deduction would have been only $139,000 for 2012 and only $25,000 for 2013. The Act also restores the Section 179 deduction phase-out threshold to $2 million for tax years beginning in 2012 and 2013 (same as for tax years beginning in 2011). Without this change, the phase-out threshold would have been only $560,000 for 2012 and only $200,000 for 2013. The temporary rule that allowed up to $250,000 of Section 179 deductions for qualifying real property placed in service in tax years beginning in 2010 and 2011 was retroactively restored for tax years beginning in 2012 and extended through tax years beginning in 2013. For 2014, the maximum Section 179 deduction is scheduled to be only $25,000, the phase-out threshold is scheduled to fall to $200,000, and the Section 179 deduction privilege for real estate expenditures will end. 15-year depreciation for Leasehold Improvements, Restaurant Property, and Retail Space Improvements extended The Act retroactively restores the 15-year straight-line depreciation privilege for qualified leasehold improvements, qualified restaurant property, and qualified retail space improvements for property placed in service in 2012 and extends the deal to cover property placed in service in 2013. Business Tax Credit provisions Research credit modified and extended The Act modifies and retroactively restores the research credit for 2012 and extends it through 2013 to cover qualifying expenses paid or incurred in those years. Work Opportunity Credit extended The Act retroactively extends the general deadline for employing eligible individuals to cover hiring in 2013. Military Service Differential Pay Credit for Small Employers extended The Act retroactively restores the credit for eligible small employers that provide differential pay to employees while they serve in the military to cover payments made in 2012 and extends the deal to 2013. The credit equals 20% of differential pay of up to $20,000 paid to each qualifying employee during the year. Employee benefit provisions Parity for employer-provided parking and transit benefits Employer-provided parking, transit passes, or vanpooling allowances are tax-free up to a monthly limit of $240 for 2012 and $245 for 2013. Without the Act, there would have been only a $125 monthly limit on employer-provided transit passes and vanpooling for both 2012 and 2013. Employer Educational Assistance Plans made permanent Through 2012, an employer could provide up to $5,250 in annual federal-income-tax-free educational assistance to each eligible employee under an educational assistance plan. Both undergraduate and graduate school costs were covered by the plan. Education did not need be job-related. This taxpayer-friendly deal was scheduled to expire at the end of 2012. The Act makes it permanent. Favorable rules for Employer-paid Adoption Expenses made permanent Bush tax cuts that increased the cap on tax-free employer adoption assistance payments and raised the income phase-out ranges to allow more employees to benefit were scheduled to expire at the end of 2012. The Act makes the Bush tax cut provisions permanent. * * * Victor Santos Sy, CPA, MBA, provides professional services in accounting and tax controversy including IRS audit defense and offers in compromise. He also advises clients on choices of entity including corporations for small businesses and LLCs for rentals. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation at 704 Mira Monte Place, Pasadena, CA 91101. The firm celebrates its 35th anniversary this year. You may email tax questions to Vic at [email protected]. You are welcome to visit our website for more than 300 tax tips at www.victorsycpa.com.
