Key Expiring Tax Provisions for Small Businesses

By now everyone is well aware that certain Bush-era tax cuts (subsequently extended in 2010) are set to expire at the end of 2012.  Given the deadlock in Congress and election year politics, it is extremely uncertain whether any extension of those cuts will occur.  So what does this mean for companies and owners?   There are two key components to the tax cuts that benefit small businesses and their owners.

The first is the historically low capital gains tax rate.  Through 2012, capital gains are taxed at a maximum rate of 15%.  Beginning in 2013, that rate is scheduled to rise to 20%.  In monetary terms, that is a $50,000 difference for every million dollars in capital gains.  On a related note, the marginal rates for ordinary income will rise as well (3% to 4.6% at the highest rates).  Certain transactions may result in the recognition of both ordinary income and capital gain income.

This is important for companies considering a sale of a subsidiary or business segment as well as for investors considering selling or redeeming their interest in a company.   Transactions such as these do not occur overnight so it is important to start the process now if you want to make sure you have the opportunity to take advantage of these rates.

The second key factor comes from the expanded Section 179 deductions allowed through the end of 2012.  Section 179 allows the treatment of the cost of certain property (most business equipment) as an expense in the year in which the property is placed in service instead of capitalizing the cost.

The 2012 maximum Section 179 expense is $139,000, but that drops to $25,000 for 2013.  In addition, the purchase limit for 2012 is $560,000 while that number drops to $200,000 for 2013.  For larger expenses on new equipment, the 2012 Section 179 allows a 50% bonus deduction on amounts over $139,000, in addition to the standard 179 deduction.

Considering a significant new investment in equipment? Now is the time to start shopping and get busy negotiating so you can close that deal and get the equipment in operation before year.

David B. Willis

David B. Willis

David Bryan Willis is a Tyler area business lawyer providing legal services to private companies, startups, and small businesses across Texas.
David B. Willis

2 Responses to Key Expiring Tax Provisions for Small Businesses

  1. […] The first is the historically low capital gains tax rate.  Through 2012, capital gains are taxed at a maximum rate of 15%.  Beginning in 2013, that rate is scheduled to rise to 20%.  In monetary terms, that is a $50,000 difference for every million dollars in capital gains.  On a related note, the marginal rates for ordinary income will rise as well (3% to 4.6% at the highest rates).  Certain transactions may result in the recognition of both ordinary income and capital gain income.Source: dbwillislaw.com […]

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