Small Business Tax Incentives Survive Fiscal Cliff

For readers unaware, fiscal cliff is the popular term used to describe the complicated issue that the U.S. government would face at the end of 2012, when the terms of the Budget Control Act of 2011 were scheduled to go into effect.

Among the changes that were set for implementation on December 31, 2012, were the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses and shifts in the alternative minimum tax that would take a larger bite.

 Three hours before the midnight deadline on January 1, the Senate agreed to a deal to avert the fiscal cliff.

 Much of the talk about this last-minute legislation to avert sharp tax increases for 2013 has concentrated on the Bush tax cuts — their permanent extension for most Americans and their expiration for a very few.

 But the bill also renews dozens of other income-tax provisions for individuals and businesses through a series of provisions that legislators call “extenders.”

 And though small businesses advocates were concerned that legislators might overlook their interests in negotiations, it turns out that their skepticism was unwarranted. Nearly all of the most important provisions won a reprieve through at least this year.

Following is a summary of select small-business tax incentives that were on the table. A comprehensive list can be accessed here. 

 •Section 179 expensing: Allows small companies to fully expense many investments in just one year, instead of over five years or more. The amount of investment eligible for immediate expensing grew to $500,000 in 2010 and 2011, but was to fall to $139,000 in 2012 and $25,000 in 2013. The new law extends the $500,000 limit through 2013, and pushes the $25,000 cap to 2014. Section 179 is available only to companies with total capital expenditures for the year under a certain threshold — $2 million through 2013 and $200,000 starting in 2014.

 •Bonus depreciation: Since 2008, companies have been able to take advantage of a special depreciation allowance that allows them to write off 50 percent (and sometimes more) of certain kinds of investment in the first year. The provision was set to expire at the end of 2012, but has been extended through the end of this year, or, in some cases, through 2014.

 •Built-in gains tax: Normally, when a company converts from a C corporation to an S corporation, it must retain its assets for at least 10 years or pay a 35-percent tax on the built-in capital gains that occurred before the company made the conversion. (The provision is intended to discourage a corporation from making the conversion simply to avoid double taxation — first at the corporate level, then at the shareholder level — on capital gains.) Since 2009, Congress has shortened the period, ultimately to five years for assets sold in 2011. The new law extends the five-year period through 2013.

 •Temporary exclusion of 100 percent of gain on small-business stock: This recent stimulus provision, an incentive to invest in small companies by making the capital gains tax-free, expired at the end of 2011 but has been extended through 2013.

 Source –New York Times – http://boss.blogs.nytimes.com/2013/01/02/small-business-tax-incentives-survive-the-deal/