AMTDA has put together this brief tutorial on the bipartisan tax relief and benefits package approved by Congress before the holidays and signed by President Obama. Included with this brief is a tax calculator that you can use to understand the impact of the tax incentives on your total cost of ownership of a new equipment purchase.
100% Expensing – President Obama first proposed temporary 100% expensing for capital investments last September. The new law enacts the President’s proposal by increasing bonus depreciation to 100% for new equipment purchased and placed into service after September 8, 2010 and through December 31, 2011.
50% Bonus Depreciation – For equipment investments placed into service after December 31, 2011 and through December 31, 2012, the new law provides for 50% bonus depreciation.
Sec. 179 Expensing Increase – The Small Business Jobs Act significantly increased Sec. 179 “small business” expensing for new and used equipment in 2010 and 2011. During those tax years, companies can expense the first $500,000 of investments up to $2 million, where it begins to phase out dollar for dollar.
Temporarily Extend the Increase in the Maximum Amount and Phase-out Threshold Under Sec. 179: For 2012 and beyond, the amount eligible to be expensed would have dropped to $25,000 up to a threshold of $100,000, indexed for inflation. The new law increases the 2012 amount to $125,000 up to a threshold of $500,000, indexed for inflation.
These depreciation provisions are designed for companies to increase their capital equipment investments over the next two years, helping to create jobs and increase U.S. competitiveness in the global marketplace.
Additional Business Tax Relief:
R&D Credit: The bill reinstates for two years (through 2011) the research tax credit.
Empowerment Zones: The bill extends for two years (through 2011) the designation of certain economically depressed census tracts as Empowerment Zones. Businesses within an Empowerment Zone are eligible for special tax incentives.
Work Opportunity Tax Credit (WOTC): Under current law, businesses are allowed to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to new hires of of nine targeted groups. These groups include members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified Veterans, designated community residents and others. The WOTC program is currently set to expire August 31, 2011. The bill extends this provision through December 31. 2011 and is effective for employees hired after the date of enactment.
Consult your tax adviser for additional tax incentives that have been extended that may impact other specific businesses issues.