Federal tax legislation passed late in 2010, as well as some existing tax laws, offer opportunities for businesses to reduce their tax liability in the current tax year.
100 Percent Bonus Depreciation
100 percent bonus depreciation is temporarily available for qualified investments made before Jan. 1, 2012, creating a strong incentive to upgrade or purchase new equipment and tangible property. For qualified property placed in service in 2012, 50 percent bonus depreciation is scheduled to return. For Indiana purposes, the bonus depreciation is not allowable and an adjustment is made to compute adjusted gross income as if no election had been made. Unlike Section 179 expensing (see below), bonus depreciation is not capped at a certain dollar level.
Section 179 Expensing Levels Available Through 2012
Section 179 expensing limits were set at $500,000 and investment limits at $2 million for 2010 and 2011 by the Small Business Jobs Act of 2010. The Tax Relief and Job Creation Act of 2010 holds the expense limit at $125,000 and the investment limit at $500,000 for 2012. For Indiana purposes, an adjustment of any Section 179 deductions taken for federal income tax purposes in excess of $25,000 is required.
Among the expenses that may qualify:
• Equipment (machines, etc.) purchased for business use
• Tangible personal property used in business
• Business vehicles with a gross vehicle weight in excess of 6,000 lbs.
• Some computer software
• Office furniture
• Office equipment
R & D Tax Credit Through 2011
The research and development tax credit was allowed to expire at the end of 2009, but a two year extension has made it retroactive to Dec. 31, 2009, and is now available through the end of 2011. The state of Indiana also allows a research and development credit for qualified activities that take place in Indiana. While companies might not typically see themselves as engaged in research and development, they may be involved in developing or improving products, processes, techniques, formulas or software. Therefore, it may be worth exploring the opportunities presented by this long-standing tax break.
Payroll Tax Cut Lasts Through 2011
The Tax Relief Act of 2010 temporarily reduces the OASDI (Old Age Survivors Disability Insurance) portion of the Social Security tax for wage earners from 6.2 percent to 4.2 percent. This “tax holiday” for employees only – employers must still pay their portion of the Social Security tax. The holiday will continue through 2011, at which time the 6.2 percent rate will return.
HIRE Act Bonus Credit
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 remain on the payroll for 52 consecutive weeks after their initial hire, the employer may be able to take an additional $1,000 credit for each employee.
Indiana EDGE Credit
Indiana allows an EDGE (Economic Development for a Growing Economy) refundable tax credit to taxpayers who create new jobs or retain jobs in the state. Taxpayers must apply to the Indiana Economic Development Corporation and certain conditions must exist to apply for the credit.
New Markets Tax Credit
The IRS has proposed changes to the New Markets Tax Credit to promote investment in non-real estate businesses in low income communities. Details of the proposed changes area available at the Community Development Financial Institutions Fund [link to www.cdfifund.gov]web site. Public comments on the proposed changes will be accepted until Sept. 8, 2011.
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