We’ve all heard ad infinitum about the Bush tax cuts expiring on Jan. 1, 2013, but there are numerous tax breaks expiring after this year that could have a drastic effect on your clients. Peruse a list of tax provisions expiring between 2010 and 2020 and you’ll see that dozens of deductions will no longer be available as of Jan. 1, 2012.
What follows is a discussion of some of the expiring deductions.
In an effort to stimulate business equipment purchases and stave off recession, Congress enacted “bonus depreciation” legislation in 2008 that allows a business to deduct up to 50 percent of the basis (generally, the purchase price) of certain property in the year the property is placed into service. Without bonus depreciation, businesses are generally required to write off purchases over a number of years.
That legislation was originally scheduled to lapse at the end of 2011, but due to the tenuous economic recovery, bonus depreciation was extended to the end of 2012—and also increased to 100 percent for property placed into service in the last quarter of 2010 or any time in 2011. There are no income or dollar limits placed on bonus depreciation—unlike the limits placed on Section 179 expensing.
Starting Jan. 1, 2012, 100 percent bonus depreciation will no longer be available.
Section 179 Expensing
Section 179 accelerated expensing limits will also ratchet down at the beginning of the year. In 2011, Section 179 allows a business to immediately write off up to $500,000 of certain expenses on purchases of up to $2 million, with the deduction phasing out after that. Starting Jan. 1, 2012, however, only $125,000 of expenses can be written off on qualified expenses of up to $250,000. In 2013 the expensing limit drops to $25,000.
Clients whose Section 179 deductions will be constrained by the 2012 limits should make their purchases now.
Tax-Free Business Sale Under Section 1202
The Creating Small Business Jobs Act of 2010 included a temporary amendment to Section 1202 that permits an eligible Qualified Small Business’ stock to be sold by its original issue shareholders without the shareholders being taxed on the stock sale. But the temporary amendment applies only to stock acquired after the enactment date of the SBJA and by Dec. 31, 2011.