So Congress has passed and the President has signed the Fiscal Cliff deal. Does everyone feel better now? Disaster has been avoided and we can go on with our lives, and continue to build our small businesses. However, there are some items in the deal – ones that didn’t quite make the headlines – that small businesses need to be aware of as they go forward with their business activities in the New Year.
Depreciation Rules Renewed
Of most concern to small business owners is the fact that the rules for getting additional depreciation breaks were renewed for the year, and will now expire on December 31, 2013. This provision allows you to deduct up to $139,000 on property that has been deemed eligible by the Internal Revenue Service, as long as that property is put into service before the end of the year. This amount will be reduced dollar for dollar by the amount the property you put into service during the year that is greater than $500,000. This is a great deal if you are a business that uses equipment, but you also need to keep in mind that the deduction cannot be used to increase a tax loss. Any amount beyond that which would make your business show a profit of $0 and therefore be a loss for the year is carried over into the next year.
Cars, Trucks, and other Equipment Deductions
If you were thinking about buying a car or truck for your business, but missed the year end cut-off and thought you lost the ability to claim bonus depreciation? Then you are in luck. The provisions in the Tax Relief Act of 2010 that allowed for fifty percent bonus depreciation for qualified property purchased and put into service has been renewed for another year, and will expire by December 31, 2013 (or might be extended again if another deal is reached at the end of this year). The type of property that would qualify would be anything that is depreciable over a life that is less than 20 years, computer software, or leasehold improvements where you are the original owner of the property being improved. Additionally, if you purchase and place into service in 2013 a new passenger automobile or a light truck that you use entirely (100%) for your business, the amount you can deduct in depreciation increases by $8,000.
Research & Development Deductions
If you are involved with research and development, there was some good news in the deal for you as well. The deal extended what is called the research and experimentation credit through the end of this year. To be eligible for this credit, you need to do research that is technological it is intended to be used to develop a new or improved area of your business. In addition, just about all of the research activities must be part of the investigation and experimenting for a new or improved process of your business. In writing the deal, Congress made this credit retroactive, so that your business can apply this credit to purchases made back in 2012.
Good News for Those Looking to Hire
Were you thinking about hiring employees this year? If so, were you thinking about hiring someone who was disadvantaged? This may be the year to do it. As part of the Fiscal Cliff deal, Congress extended through the end of the year the Work Opportunity Credit. This gives you a tax break for hiring workers from certain groups, such as welfare recipients, veterans, ex-felons, and people from various other groups. However, you will need to get certification from your state’s employment security agency that the person is a member of a targeted group.
Is the Fiscal Cliff Deal a good thing for the country? We may have to wait and see on this one. However, there are some aspects of the deal that will be beneficial to small businesses. If you have additional questions, a good accountant would be happy to answer them and help you understand the deals impact on your business.
In accordance with Circular 230 Treasury Department Regulations, we are required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code. If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.
The author, Chris Peden, CPA, CMA, CFM, has over 15 years of experience with helping people and companies with organizing and making sense of their finance information, as well as meeting their regulatory compliance requirements. He is also available as a freelance blogger if you need an article on finance, accounting or taxes for your blog. He can be reached at firstname.lastname@example.org.