Commentary: Top 10 Tax Benefits for Businesses to Consider Before 2011 Ends
With a presidential election looming in fall 2012, it’s anyone’s guess where taxes will be heading in the coming year. But that doesn’t mean business owners are not without options or opportunities at the end of 2011. Tax experts have identified the following top 10 tax benefits for businesses to consider before 2011 ends.
1. 100% Bonus Depreciation: Qualified investments in new equipment and tangible property before Jan. 1, 2012, may be eligible for temporary 100% bonus depreciation. For qualified property placed in service in 2012, 50% bonus depreciation is scheduled to return for 2012. Unlike Section 179 expensing (see below), bonus depreciation is not capped at a certain dollar level.
2. Section 179 Expensing:
The Small Business Jobs Act of 2010 set Section 179 expensing limits at $500,000 and investment limits at $2 million for 2010 and 2011. The Tax Relief and Job Creation Act of 2010 holds the expense limit at $139,000 and the investment limit at $560,000 for 2012, so it’s important to take full advantage of the higher limits before Dec. 31.
3. Real Property Expensing: For tax years beginning in 2010 and 2011, up to $250,000 of qualified real property can be treated as Section 179 property. Normally, only tangible personal property qualifies, but under new, temporary rules, real property such as qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property, all may qualify. Unless Congress acts, these properties will revert to straight-line depreciation after Dec. 31.
4. R&D Tax Credit: The Research and Development Tax Credit has never been made permanent, and judging by history, there is a good chance that it will be allowed to expire at the end of 2011. If your company has conducted qualified research to develop or improve products and processes during the year, you might qualify for this credit. Most tax watchers believe it’s almost certain that the credit will eventually be renewed, but the push for tax reform could stall the inevitable. Analyze expenses now to see how much credit you may qualify to receive.
5. Work Opportunity Tax Credit: With the exception of a newly enacted credit for hiring military veterans (see below), the Work Opportunity Tax Credit (WOTC) is set to end on Dec. 31. WOTC allows employers to claim a percentage of first-year wages for hiring workers in target groups, including veterans, ex-felons, disabled persons and those receiving federal or state assistance. The credit is based on a percentage of the employee’s first year wages. To claim the credit, employees must begin work before Jan. 1, 2012.
6. Returning Heroes Tax Credit/Wounded Warriors Tax Credit: Under the new Returning Heroes Tax Credit and the Wounded Warriors Tax Credit, employers that hire veterans who have been unemployed for more than six months may be eligible for a credit of up to $5,600 per employee. Those hiring veterans who have been unemployed for less than six months may be eligible for a credit of up to $2,400 per employee. Employers hiring veterans with service-connected disabilities who have been looking for employment for more than six months may qualify for a Wounded Warriors Tax Credit of up to $9,600 per employee.
7. HIRE Act Retention Bonus: Last year’s HIRE Act (Hiring Incentives to Restore Employment) offered employers an exemption from Social Security payroll taxes for qualified workers hired any time after Feb. 3, 2010, and before Jan. 1, 2011. If those workers are still on the payroll 52 consecutive weeks after their initial hire date, you may be able to take the lesser of a $1,000 credit for each employee or 6.2% of wages paid to the retained worker during the 52 consecutive week period.
8. Domestic Production Activity Deduction: Virtually every U.S. manufacturing business, regardless of size or industry, is eligible for tax savings with the domestic production activities deduction. DPAD offers a maximum deduction of 9% of income from qualified production activities, which may include:
• Manufacture, production, growth or extraction of tangible personal property, including software, sound recordings and qualified films
• Production of electricity, natural gas or potable water
• Construction services, including renovation of residential and commercial properties
• Engineering and architectural services related to a U.S. construction project.
9. Small Business Health-Care Tax Credit: The small business health-care tax credit provides an incentive for small businesses and not-for-profits with 25 or fewer employees to offer employee health insurance coverage. To qualify, the workers must have an average income of $50,000 or less, and the employer must cover at least 50% of the cost of health-care coverage. The credit phases out gradually for companies with average wages between $25,000 and $50,000. Currently, the credit is worth up to 35% of the qualifying business’ premium costs in 2011, or 25% of costs for tax-exempt employers. In 2014, the rate increases to 50% and 35% for tax-exempt employers.
10. Energy-Related Credits: Originally enacted in 2009 and extended in 2010, the Renewable Energy Grant Program will continue offering cash grants for renewable energy projects that are under construction on Dec. 31, 2011. The program is administered by the Department of Treasury, and is offered in lieu of the Federal Business Energy Investment Tax Credit. It is ideal for new projects and start-up companies with limited cash flow. Grants are for up to 30% of the basis of the property for solar energy, fuel cells, small wind turbines and qualified facilities that produce electricity. Geothermal heat pumps, microturbines and combined heat and power may qualify for a 10% grant. Grant applications must be submitted by Oct. 1, 2012.
Clifton Gunderson, ranked as one of the nation’s largest certified public accounting and consulting firms and the largest U.S. member firm of HLB International, provides a wide range of assurance, tax and consulting services to clients in a variety of industries. For more information about year-end tax incentives, contact a local Clifton Gunderson office, or visit www.cliftoncpa.com.