By on Sep 26, 2011 in General Tax, Uncategorized | 0 comments

Small business owners currently face many uncertainties regarding present and future economic conditions. While certain soon-to-expire tax provisions may be extended for another year or so in an effort to kick start the economy, there is no guarantee that will be the case. Prudent business planning entails taking advantage of any available taxbreaks while they are still “on the table.” Below, we review some of the major business taxbreaks that are slated to expire December 31, 2011.

100% Bonus Depreciation

Generally, a 100% bonus depreciation allowance may be claimed for qualified property acquired and placed in service after September 8, 2010, and before January 1, 2012. For qualified property acquired and placed in service in 2012, a 50% bonus depreciation allowance is generally scheduled to apply.

Section 179 Expensing Allowance

For 2011, the maximum allowable amount of a qualifying asset purchase that may be expensed in full by a business is $500,000. (This amount is scheduled to be reduced to $125,000 after 2011). The maximum annual expensing amount for 2011 is reduced dollar for dollar by the amount of qualifying property placed in service in excess of $2,000,000 ($500,000 for 2012). For 2011, up to $250,000 of qualified real property (that is, qualified leasehold-improvement, restaurant, or retail-improvement property) may be expensed under IRC Sec. 179.

Note that the bonus depreciation and section 179 expensing rules together offer significant tax-planning opportunities for business taxpayers. See us for details.

Research Tax Credit

Generally, this credit applies to amounts paid or accrued before January 1, 2012, and is equal to 20% of the excess of qualified research expenses for the tax year over a base amount.

Work Opportunity Tax Credit

Employers who hire individuals from certain targeted groups are allowed to claim a credit against income tax in an amount equal to a percentage of first-year wages of up to $6,000 per employee ($12,000 for qualified veterans). Generally, the percentage of qualifying wages is 40% of qualifying first year wages (25% for employees who have completed at least 120 hours of service, but less than 400 hours of service for the employer).

Differential Wage Payment Credit

Eligible small business employers who pay differential pay may claim a credit equal to 20% of up to $20,000 of differential pay made to an employee during the tax year. Differential pay is generally defined as payments made to employees for periods during which they are called to active service in theU.S. uniformed services for more than 30 days. Such payments represent all or part of the wages that they would have otherwise received from the employer. An eligible small business employer is one who, on average, employs fewer than 50 employees and provides eligible differential wage payments to each of its qualified employees under a written plan.

Charitable Contribution Deductions

Through December 31, 2011, a regular “C” corporation’s so-called enhanced charitable contribution deduction is equal to the lesser of:

  • The property’s tax basis, plus half of the property’s appreciation, or
  • Twice the property’s tax basis for contributions of food inventory that is “apparently wholesome food.”

A similar deduction applies to qualified contributions of book inventory to certain public schools, as well as computer technology or equipment to schools or libraries.

Please contact us if you have any further questions relating to these — or any other — tax provisions that may be applicable to your business.