By Bart Basi
Volume 26/Number 26; May 13/20, 2013
In January, Congress enacted the Taxpayer Relief Act of 2012. Within the law, over 100 changes were made to the Internal Revenue Code. Many of the laws were made retroactive to January 2012.
Here is a partial discussion of the more commonly used credits and deductions that have been made retroactive to Jan. 1, 2012.
•Deduction of state and local sales taxes. Some states such as Florida and Texas do not have individual income taxes. State income taxes are deductible as an itemized deduction. With this, sales taxes can be deducted as an itemized deduction. This is advantageous for those living in states where there are no state income taxes.
•Research credit. This credit applies to the increase in expenditures for research done on the development of a product. Users file Form 6765 to calculate the credit and submit it with their tax forms. Businesses should look at this very clearly as it means a direct decrease in taxes paid.
•Work opportunity credit. This tax credit is designed to get youths, felons, veterans and disadvantaged groups to begin and continue to work. Employers employing one of the targeted groups file Form 5884 and receive a tax credit of between 40% and 50% of qualified wages.
•Section 179. For the past 10 years, Section 179’s advanced depreciation has been a benefit to small business owners. In 2012, it was slated to decrease in amount to $139,000. In the Taxpayer Relief Act, the amount was increased to $500,000 retroactively, to Jan. 1, 2012, meaning it will not only remain a benefit to small businesses, it has become an even bigger benefit for companies to take advantage.
•100% of gain on small business stock. Some small business stock gains are eligible for 50%, 60% and even 100% with no capital gains treatment upon sales of the stock. Generally, the company assets must be below $50 million. This is a huge benefit for closely-held businesses with small asset amounts being sold.
•Bonus depreciation. This was one area that was expected to completely go away this year as the economy is improving and people are going back to work. But, Congress decided to extend the bonus depreciation. Bonus depreciation applies to original use/brand new items and is 50% of the cost. This is in contrast to Section 179, where items can be used.
•Certain expenses of school teachers. Normally, unreimbursed employee expenses are taken as a miscellaneous itemized deduction; however, teachers receive an advantageous position on their tax returns. Teachers who work kindergarten through eighth grade can take an above the line deduction on line 23 for unreimbursed employee expenses. The amount is $250 for one educator or $500 for married educators filing jointly.
Conclusion
All credits and deductions listed are available for use on your 2012 tax return as they are all retroactive to Jan. 1, 2012. Retroactivity is a positive feature in the Tax Code this year. Unexpected deductions are available for both personal and business taxpayers. It would have been preferable to know about and be able to use these deductions within the tax year of 2012; however, it is better to be late than not have the deductions at all.
Lately, the tax law in this country has been a moving target for businesses and industries. If you have a business or an association and would like to know more about the new tax law, I have already spoken multiple times on the subject and would be happy to entertain the possibility of speaking to your organization about the new tax laws and how they impact business decisions.