Late in the year last year, Congress extended several tax law provisions but only for a short period of time. Below are items that may expire at the end of this year if no action is taken by Congress.
The research credit gives taxpayers a credit for expenditures on qualified research expenses, basic research payments to universities, and energy research undertaken by an energy research consortium. The amounts must be paid or accrued before January 1, 2012.
The Work Opportunity Tax Credit (WOTC) gives employers a tax credit for hiring workers from certain targeted groups of people. The credit is typically a percentage of wages paid to the new employee. It varies by which targeted group the employee belongs to and which year of service the employee is in. However, the credit is only available on wages that are paid or incurred after December 31, 2011.
For taxpayers who invest in qualified community development entities, the new markets tax credit (NMTC) they may be entitled to is not provided for in the current tax code after 2011. Typically, taxpayers claim a percentage of their investment over a 7-year credit period.
If a small business employer pays differential wages to employees who are called to active duty with the U.S. uniformed services for more than 30 days, they may be eligible to receive a differential wage payment credit. The credit isn’t available for wages paid after December 31, 2011.
Eligible contractors may claim a credit for new energy efficient homes they construct or sell to others for use as a residence. The credit is only available for home acquisitions before December 31, 2011.
For qualifying property placed in service before December 31, 2011, 100% bonus depreciation is an available option for recovering the cost of the asset. The amount of bonus depreciation available beginning on January 1, 2012 is 50%.
Another option available for property placed in service before December 31, 2011 is to expense the property under Sec. 179. The current amount that is allowed to be expensed under Sec. 179 is $500,000. Beginning January 1, 2012, that limit drops to $125,000.
Several items concerning charitable deductions have been enhanced but only through 2011. The following enhancements are scheduled to end at the end of the year:
- When contributing food inventory, book inventory, or certain contributions of computer technology or equipment. a C corporation’s ability to deduct the lesser of the property’s basis plus one half of its appreciation or double its basis
- An S corporation shareholder’s ability to deduct only their pro rata share of the contributed property’s basis from their basis of shares rather than their pro rata share of the fair market value
Taxpayers who incur expenses for cleanup of hazardous substances at a qualified contaminated site will lose this deduction after 2011. The general treatment is to capitalize these costs but a special provision allows them to be deductible if paid or incurred before January 1, 2012.
There are two considerations to take away from this: look into areas where accelerating expenditures, placed-in-service dates or new hires can be beneficial but also look to see how the expiration of these credits and deductions will impact your business if you’re currently taking advantage of them.