You never know what you have until it is gone. Given the volatile nature of national politics, many taxpayer-friendly provisions that are scheduled to sunset at the end of the year may either be allowed to expire or reinstituted with less favorable terms. With uncertainty in the air, taxpayers may wish to take advantage of programs by accelerating purchases, hiring, and making other business decisions.
Below are nine tax provisions that may sunset Dec. 31, 2011:
100 Percent Bonus Depreciation
Bonus depreciation allows for accelerated depreciation of certain qualified property. The 100 percent bonus depreciation allowance was written to apply to property that was placed in service between the dates of Sept. 9, 2010, and Dec. 31, 2011. The bonus depreciation allowance will be reduced to 50 percent beginning Jan. 1, 2012.
15-Year Depreciation for Certain Realty Assets
For a limited time, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property were able to be depreciated over a 15-year term. For assets placed in service after Dec. 31, 2011, the depreciation period will be pushed back to 39 years.
Differential Wage Payment Credit for Employers
The differential wage payment credit provides small business employers with a credit of up to 20 percent of the first $20,000 of differential wages paid to active duty service members. Only differential wages paid before Jan. 1, 2012, are eligible for the credit.
Expensing of Environmental Remediation Costs
Under current law, taxpayers that bear costs in abating hazardous substances may be able to expense qualified environmental remediation expenses instead of capitalizing them. Remediation expenses paid or incurred after Dec. 31, 2011, will not be able to be expensed.
New Energy Efficient Home Credit
The new energy efficient home credit provides certain contractors with a credit of $1,000 or $2,000 for the construction of a qualified new energy efficient home. The credit will not apply to homes acquired after Dec. 31, 2011.
New Markets Tax Credit
The New Markets Tax Credit is a tool used to spur investment into projects located in targeted communities. A taxpayer who holds a qualified investment in a qualified community development entity may be entitled to a credit in the amount of 39 percent of the qualified equity investment. The program is set up with an annual limitation on the amount that may be designated, and the last limitation is for 2011.
The research credit is used to incentivize companies that carry on research and development. It can provide a 20 percent tax credit for certain research expenditures, including qualified research expenditures, university basic research payments, and expenditures for qualified energy research. Only amounts paid or accrued before Jan. 1, 2012, may be used in calculating the credit.
Section 179 Expensing
Section 179 permits property to be expensed rather than being capitalized. The maximum amount that can be expensed for tax years 2010 and 2011 is $500,000. Starting with 2012 tax year, the maximum amount will be reduced to $125,000. Further, there is an investment ceiling that reduces the expensing amount when taxpayers place additional property in service. The investment ceiling will drop from $2,000,000 to $500,000 for 2012.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) incentivizes employers to hire members of targeted groups such as veterans, summer youth, ex-felons, and governmental assistance recipients. The program generally provides a 40 percent tax credit on first-year wages up to $6,000, with variations for certain targeted groups. Eligible wages are limited to those individuals who begin work before Jan. 1, 2012.
Utilizing Favorable Tax Provisions
With the threat of losing favorable tax provisions only months away, now is the time to consider whether you might be able to benefit from them. There are subtle distinctions in the provisions discussed above with respect to who can and cannot utilize them. We would be happy to discuss whether your business might benefit from any of the above programs.
Please contact your KSM advisor for more information.