What do the tax extensions mean to my business?

Joe Popp | December 20th, 2010

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (HR 4853), signed by President Obama on Friday, December 17, 2010, contains several provisions that will impact businesses. Below is a quick roundup of the provisions for businesses. Most of the provisions below are scheduled to sunset on 12/31/20112, unless otherwise noted.

  • 100 percent bonus depreciation through 2011 – The bill provides for 100 percent bonus depreciation for assets placed in service after 9/8/10 and before 1/1/12.
  • 50 percent bonus depreciation from 1/1/12 to 12/31/12 – The bill extends 50 percent depreciation in 2012.
  • Refundable credits in lieu of bonus depreciation – The bill extends through 12/31/12 the ability of businesses to elect to claim additional research or minimum tax credits in lieu of taking bonus depreciation.
  • 179 extensions – The Small Business Jobs Act increased 179 expensing to $500,000 with an investment limit of $2,000,000 for 2010 and 2011.  The bill provides for $125,000 expensing with a $500,000 exemption limit for 2012.  The bill also extends the inclusion of off-the-shelf computer property in qualifying property through 12/31/12.
  • Research Tax Credit – This credit had expired at the end of 2009.  The bill renews the credit for 2010 and 2011.
  • Exclusion of Gain for Small Business Stock – The 100 percent exclusion for small business stock and held for 5 years is extended to stock acquired after 9/27/10 and before 1/1/12.
  • Work Opportunity Credit – Extended through 12/31/12.
  • 15 recovery period for qualified leasehold, restaurant, and retail store improvements – Extended through 12/31/12.
  • Enhanced charitable deductions for contributions of food inventory, books, computer equipment – Extended through 12/31/12.
  • Energy Credits – These credits are all extended through 12/31/12 unless otherwise noted.
  1. Biodeisel creditRefined coal facilities
  2. Energy efficient homes credit (for builders of those homes) (2011 only)
  3. Energy efficient appliance credit (for manufacturers) (2011 only)
  4. Percentage depletion from marginal wells
  5. Grants in lieu of certain energy tax credits

Employer Provided Child Care – The credit for employers who provide child care facilities has been extended through 12/31/12.

We’ve also outlined provisions in the new tax law that impact individual taxpayers in a previous blog post. To learn more about how these tax extensions will impact your business over the next two years, be sure to discuss them with your accounting professional. We will also break down the details of several of these provisions in future posts.

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3 Responses to “What do the tax extensions mean to my business?”

  1. The 2010 Tax Relief Act did a lot to provide small businesses tax relief in a number of key areas. It appears that individuals also received a fair amount of relief through items such as the payroll tax cut and extension of several credits like the mortgage premium insurance break.

    For the 100% bonus depreciation does this apply to investments such as real estate and software or this just strictly production assets?

  2. Good question. Bonus Depreciation is available for assets that have class lives under 20 years. A class life is like an estimate for purposes of depreciation of the useful life of an asset to a business. For things like software, which have a short window of usefulness, the class life is short life 3 years. For things like buildings, which have a long period of usefulness, the class is longer like 39 years.

    The general answer to your question then, is that bonus depreciation is only available for equipment and certain improvements to real estate (which are narrowly defined) – things with class lives under 20 years. Real estate itself is not eligible. Software (generally speaking) is. You must use the assets purchased in a trade or business in order to depreciate them (so be careful what you buy as an “investment”).

  3. Thanks for the detailed response. There was confusion over this fact. I know there was mention of real property being included but I was honestly not sure.

    Happy Holidays Sir!

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