April 2, 2012
With the 2011 tax deadline behind us, and special Recovery Act incentives phasing out, small businesses need to reassess their strategies for upcoming 2012 tax changes.
Equipment deductions, new reporting requirements and a whopper of a tax credit are all on the table.
Here are five key 2012 tax changes of Federal tax law provisions for small businesses.
What a Boon: Small Business Health Care Tax Credit
With unemployment down substantially from its peak, even very small businesses should consider offering at least partially paid health insurance, to retain high potential employees.
The good news is that, if conditions are met, small employers can claim a tax credit of up to 35 percent of the employee premiums they pay in 2012.
Add in a deduction for the remaining 65 percent of employer-paid premiums and your company could get back in tax savings more than half of what you invest in this coveted employee benefit.
Even better news: the maximum Small Business Health Care Tax Credit is scheduled to rise to 50 percent on Jan. 1, 2014.
“If you can clear all the hurdles on an ongoing basis and sustain paying for half or more of the premium, it’s a great credit,” says Tim Gagnon, CPA, a professor at the College of Business Administration at Northeastern University.
The Incredible Shrinking Section 179 Deduction
The Section 179 deduction for tax year 2012 should be filed under “half full, half empty.” For tax year 2011, business could immediately deduct up to $500,000 in certain business equipment purchases, rather than depreciate it over a period of years.
For 2012, the ceiling on this deduction drops to $139,000 -- still a generous amount for a very small business. And it’s a brass ring to grab before the maximum deduction drops again, to $25,000 in 2013.
New for 2012: real estate no longer qualifies for the Section 179 deduction.
A Smaller Bonus for Small Business
The bonus depreciation deduction is also taking a haircut in tax year 2012.
This business deduction, which applies after you’ve maxed out your Section 179 deduction, enables you deduct up to 50 percent of certain equipment investments, up to a total of $2 million for both Section 179 and bonus deductions. That’s down from a 100 percent bonus deduction for tax year 2011.
Keep in mind that a big current-year deduction, however enticing, isn’t always superior to depreciation over the long haul. Consult with a tax professional.
“The government is providing these generous incentives,” says Mike D’Avolio, a senior tax analyst at Intuit in Mountain View, Calif. “You just want to know how generous they are for your particular situation.”
A New Reporting Requirement: Form 1099-K
Does your small business accepts merchant credit or debit card payments or payments via online networks, such as PayPal?
If so you may need to update your bookkeeping and accounting systems to keep on top of new IRS reporting requirements for these transactions, according to Gagnon.
When you’ve gotten over your headache from trying to understand what the IRS has to say about the new 1099-K requirements, consult with your tax professional.
Keep an Eye on Perennial ‘Tax Extenders’
Because of Congress’s annoying habit of repeatedly renewing dozens of tax incentives for just one year at a time, small business owners need to keep an eye on these so-called tax extenders.
The largest of these tax savers, the research and development tax credit, has faced an up-or-down vote annually for about 30 years, creating economically destructive uncertainty among business owners.
“The R&D tax credit seems likely to be extended, but who knows,” says Valerie Colin, senior vice president with accounting firm Gumbiner Savett in Santa Monica, Calif.
Tax extenders of particular interest to small business include a 15-year write-off period for restaurant and rental-property renovations and a $1,000 credit for new hires and the 100 percent exclusion of gains on small business stock.
Keep up with legislative action on the tax extenders by subscribing to IRS newsletters or asking your tax professional. And don’t forget to check on changes to state and local tax law.
Disclaimer: All tax laws are subject to change. None of the information provided herein constitutes legal or tax advice on behalf of the author or Monster.