2012-13 Fiscal Cliff Deal Tax Incentives for Business Opportunity and Other Small Business Owners

Okay, so now that the dust has settled on the most recent fiscal cliff crisis, it’s time to take stock of what it all means for small business owners, especially given that there was so much attention paid to the impact that actually going over the cliff would have had on them specifically. While the details of the deal are somewhat complex and parts of it will undoubtedly have a negative impact on some, there were a number of bright spots in the solution recently agreed upon by the President and the Congress.


Known as the American Taxpayer Relief Act of 2012 (ATRA) and signed into law by the President on January 2, the law averts the scheduled income tax rate increases and spending reductions required by the Budget Control Act of 2011. As such and according to the U.S. Small Business Administration (SBA), more than 98 percent of Americans and 97 percent of small business owners will not see their income taxes go up this year. Additionally, the law includes a number of tax incentive extensions, all preserved in an effort to encourage innovation, support capital investment and make hiring a more attractive proposition.

Here’s a quick review of the ones that matter most:

Research and Development (R&D) Tax Credit: Often recognized as the most important tax credit for small- and medium-sized business owners (SMBs), the credit has been extended through 2013 and made retroactive for 2012. While not permanent at this point (a flash point of contention for many), it represents a tax break of anywhere from 6 to 14 percent of R&D expenditures for many SMBs.

Section 179 Expenses: Another popular provision, Section 179 allows small companies to fully expense certain investments—qualified new/used equipment, for example—in just one year rather than depreciating and expensing it over time. It extends the half-million-dollar limit for both 2012 and 2013 for companies with less than $2 million in qualifying capital expenditures.

Work Opportunity Tax Credits: Employers who hire military veterans or individuals from certain disadvantaged populations that are now facing barriers to employment will continue to receive tax credits through 2013.

Bonus Depreciation: Certain qualified SMB investments have warranted a 50%-or-more depreciation write-off in the first year, which was set to expire at the end of 2012. That provision has now been extended through 2013 and even through 2014 for certain types of property.

Other incentives of note for home-based and other business opportunity, franchise, licensee opportunity, distributorship and SMBs of all kinds that have been preserved moving into the next tax year include: 1) Built-in gains tax, which affects companies converting to an S-corporation; 2) Adjustment to charitable S-corporation stock, 2) Enhanced charitable deductions for contribution of “apparently wholesome food” inventory; 3) Temporary exclusion of 100 percent of gain on small-business stock; and 4) Fifteen-year depreciation for qualified improvements to leasehold, retail or restaurant property.

For more information on paying your SMB taxes for 2012, go to the IRS Website now!

 

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