Much of the fiscal cliff focused on the increase in taxes that would occur if the Bush tax cuts were allowed to expire, but the legislation also renewed many tax provisions that benefit small businesses and their owners. These provisions were a concern for small business activists who thought the last minute negotiations would lead to small business concerns being skipped over by lawmakers. Through legislative “extenders,” however, most of the provisions will continue on for at least a year.
One of the biggest concerns was Section 179 expensing which, among other things, allows small businesses to deduct qualifying equipment, including software, from their gross income. The deduction limit for equipment was capped at $139,000 for 2012, but lawmakers have voted to increase the limit to $500,000, the 2010 and 2011 limit. This section is especially important for small companies because it is only available to those with capital expenditures less than $2 million for 2013. Another “extender” is the bonus depreciation part of Section 179, which has been in place since 2008 but was set to end as 2012 came to a close. The bonus depreciation is also known as the 50 percent depreciation allowance and only covers new equipment.
Recently rescued, the Research and Experimentation Tax Credit also helps small businesses or companies that help to research and develop products, techniques, software, etc. The credit was supposed to end in 2011, but now it will last until the end of this year. The Built-in gains tax has also survived legislation and will continue to allow businesses to have only the five-year period of retaining assets.
The fiscal cliff legislation and its extenders also allow work opportunity tax credits to continue. These will enable employers of veterans and the disadvantaged to earn tax breaks and were supposed to end in 2012 and 2011, respectively. They now will continue until the end of this year along with the provision that allows 15 year depreciation for specific lease-holding, retail, and restaurant properties. The credit allows those qualified to earn breaks for upgrades made within 15 years.
The enhanced charitable deduction for contribution of food inventory will also continue until 2013. Its provision lets businesses write off twice the normal deduction for providing their food inventory. There was a similar credit for companies that donated software and computers to libraries and schools, but this was not extended.
Mandelbaum, Robb. “Small-Business Tax Incentives Survive the Deal.” The New York Times. 1/2/13.