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SCCA Magazine |
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2010 Tax Relief Act: Benefits for business |
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By Glenn Gelman
Business planning just got more certain with passage
of the Tax Relief, Unemployment Insurance Reauthorization
and Job Creation Act of 2010 (H.R. 4853).
The multi-billion dollar law extends, renews or enhances a
large number of business tax incentives, including the following.
Business spending
During previous economic slowdowns, Congress has used
bonus depreciation and enhanced Code Sec. 179 small
business expensing to help jumpstart business spending.
The new law provides 100 percent bonus depreciation for
qualified property acquired after September 8, 2010, and
before January 1, 2012, and placed in service before January
1, 2012, (or before January 1, 2013, for certain longer lived
and transportation property).
Additionally, 50 percent bonus depreciation is available
for qualified property placed in service in 2012.
Moreover, certain corporations may be able to elect to
accelerate any alternative minimum tax (AMT) credit in
lieu of bonus depreciation.
Along with bonus depreciation, the new law extends
enhanced Code Sec. 179 expensing for 2012 but not at the
2010 and 2011 dollar and investment limits. For 2010 and
2011, the Code Sec. 179 dollar limit is $500,000, and the investment
limit is $2 million.
The new law makes no changes to these limits for 2010
and 2011. However, the dollar limit will fall to $125,000
(indexed for inflation) and the investment limit will fall to
$500,000 (indexed for inflation) for tax years beginning in
2012 (and sunsetting after December 31, 2012). The 2012
amounts, while reduced from 2010 and 2011, are still
above the amounts that would have been in place for 2012
absent the new law – $25,000 and $200,000, respectively.
For 2010 and 2011, special rules apply to qualified real
property. Taxpayers can elect up to $250,000 of the
$500,000 dollar limit for qualified leasehold improvement
property and qualified retail improvement property. The
new law does not extend these special rules beyond 2011.
It does renew a 15-year recovery period for qualified
leasehold improvement property and qualified retail improvement
property for 2010 and 2011.
Payroll tax cuts
The new law reduces an employee's share of Social Security
taxes (the OASDI portion) from 6.2 percent to 4.2 percent
up to the taxable maximum amount of $106,800 for
calendar year 2011. The new law does not reduce the employer's
share, which remains at 6.2 percent for 2011.
Self-employed individuals, including independent
contractors, are entitled to a 2 percentage point reduction
in payroll taxes, from 12.4 percent to 10.4 percent.
Tax brackets
Businesses owners who are taxed at the individual tax
rates will benefit from an extension of reduced individual
tax rates. The new law extends for two years (2011 and
2012) the current individual tax rates of 10 percent, 15 percent,
25 percent, 28 percent, 33 percent, and 35 percent).
Estate tax
Under the new law, the federal estate tax will again apply
to the estates of decedents dying after December 31, 2009,
and before January 1, 2013. The law sets a maximum estate
tax rate of 35 percent with a $5 million exclusion ($10
million for married couples). Executors of estates
of individuals who died in 2010 can elect out of the
estate tax.
Research tax credit
In recent years, Congress has come close to making the
Code Sec. 41 research tax credit permanent but the cost of
a permanent credit has been prohibitive. The new law renews
the credit for 2010 and 2011.
Work Opportunity Tax Credit (WOTC)
WOTC rewards employers that hire economically disadvantaged
individuals and individuals from groups with
historically high rates of unemployment. Scheduled to expire
August 31, 2011, the new law extends WOTC through
2011. The new law does not include two groups that were
added to the credit in 2009 – unemployed veterans and
disconnected youth.
Energy
Recent laws have used the Tax Code to encourage development
and production of alternative fuels, such as energy
from wind and biomass. Many of these incentives are
temporary. The new law extends, renews or enhances
some of the incentives, including:
● Grants for certain alternative energy property in lieu
of tax credits
● Tax credits for biodiesel and renewable diesel fuel
● Tax credit for refined coal facilities
● Percentage depletion for oil and gas from marginal
wells
● Special tax incentives for builders of energy-efficient
homes.
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