Bye-bye uncertainty. When you do your taxes this year, you can thank the 112th U.S. Congress for reinstating several expiring tax provisions and making more generous others that specifically benefit small businesses—part of the American Taxpayers Relief Act, passed on January 1, 2013. But one of the most important things this act did, said Paul Gevertzman, a tax partner at accounting firm Anchin, Block & Anchin, in New York, is to remove uncertainties. “Not knowing the tax rules makes it very difficult to plan,” he said in an interveiw. The tax rates for income, capital gains, estates and the Alternative Minimum are not going to expire in another year or two or five. They are permanent. Until the next big revision of the tax code.
Here are four provisions of the American Taxpayers Relief Act that benefit small businesses:
The Estate Tax. If no deal had been struck, the estate tax’s $5 million per person exemption would have dropped to $1 million. That larger exemption is important, said Gevertzman, to transfer to the next generation the wealth that hardworking people in family businesses have earned. Portability was left in place. “If I leave everything to my spouse she’s only going to be exempt one time. Portability means whatever I don’t use, she can use it. So together we’ve got $10 million” that one spouse can leave to the other in a tax-exempt transfer.
Section 179 & Accelerated Depreciation Rules. The Section 179 deduction was raised from the 2012 level back to the limit it had in 2010-2011. This tax benefit lets companies buy (or finance or lease) as much as $2 million worth of new or used equipment, including off-the-shelf software and business vehicles, and expense 100 percent of the cost in the year it is put into service, up to a limit of $500,000. The new limit (up from $139,000) is retroactive for 2012 taxes. Bonus depreciation rules got renewed too, giving businesses the option of taking an extra 50 percent write-off—and the business can carry that write-off forward to a better year if it operates at a loss in 2012 or 2013.
3. Leasehold Improvements. “If you are a tenant, as many small businesses are, the likelihood is that you would qualify for the [extended from last year] 15-year write-off” for capital improvements you make to your business premises, said Gevertzman. Restaurant buildings and retail establishments, if qualified, also benefit from the provision. Without that renewal, you would have had to depreciate your improvements on a 39-year schedule. “That’s a big break. Once it’s 15-year property, then theoretically it’s eligible for one of the accelerated depreciations, the bonus depreciation,” he said.
4. The R&D Tax Credit. This is a credit for doing R&D work in the United States. It expired at the end of 2011 and is now reinstated for 2013 and retroactively to 2012. Tax experts say it is an underutilized credit that can save small businesses substantial sums. “People think it’s something for the guys in lab coats,” said Gevertzman, “but it’s a lot broader than that.” He says clients from architects and engineers to beverage companies to jewelry manufacturers are getting the credit, “because there is a certain amount of design that goes into every product. It doesn’t have to be a new product that’s never been done before, it’s got to be an improvement to a process. And there’s got to be a certain amount of risk involved.”
You can take the credit based on an average of the previous three years of research expenses. You can carry forward the credit for 20 years—a great benefit for startups—and even transfer the credit in an acquisition.
CPA Sean Haggard, quoted in a Businessweek article, said, “If you have an engineer on staff, you probably have research and development expenses you should be capturing. If you’re undertaking research that’s technological in nature, with a process of experimentation to eliminate uncertainty, you have a qualified R&D expense.”