How The Relief Act is Working for Business, Part One

Author: Keith Huggett 

The Taxpayer Relief Act had a lot more of an effect on business than just affecting the payroll department. In total there were thirty-one General Business Provisions made in the Act.  This list does not include the additional provisions made for Unemployment, Energy, Healthcare, or other departments.

This series of articles will cover the Business Provisions in increments of five - six at a time, as the information is daunting and important to reflect upon as it applies to your business. Each provision will not apply to every business out there, however they are all important on their own.

• The Work Opportunity Tax Credit (WOTC) was extended for individuals who began to work for their employers prior to January 1, 2014.  The WOTC allows employers who hire qualified veterans to get a credit against income tax by using Form 5884 of a percentage of a specified amount of first-year wages. The qualified veterans must belong to a targeted group which include qualified recipients of aid to families with dependent children, qualified ex-felons, former "high-risk youths", vocational rehabilitation referrals, qualified summer youth employees, qualified food stamp recipients, qualified SSI recipients, hong-term family assistance recipients, certain unemployed veterans, and certain disconnected youths.
  
  
• The New Markets Credit has been extended through 2013 to allow a maximum annual amount of $3.5 billion per year of qualified equity investments to acquire stock in a community development entity (CDE). A CDE is any domestic corporation or partnership whose primary mission is servicing or providing investment capital for low-income communities or low-income persons, that maintained accountability to residents of low-income communities through representation on governing or advisory boards of the CDE, and was certified by the Treasury as an eligible CDE.
  
  
• The cost recovery period for depreciation of certain real property improvements: restaurants, leaseholds, and/or retail stores, that have been placed into service prior to January 1, 2014 has been retroactively extended from January 1, 2012 through December 31, 2013.
  
  
• New rules have been created for qualified small business stock. The Act extends the 100% exclusion of gain from the sale of qualified small business stock to qualified stock purchased after December 31, 2011 and prior to January 1, 2014 and held for more than 5 years.
  
  
• There has been a reduction in the S corporation recognition period of built-in gains tax. The extension reduces the five year holding period for sales in tax years beginning in 2012 and 2013.  The Act also clarifies the rules regarding carryforwards and installment sales.
  
  
• Special rules for S corporations making charitable donations of property were also created by the Act. It allows that for tax years beginning after December 31, 2011 through January 1, 2014, S Corporation shareholders can take into account their pro-rata share of charitable deductions even if those deductions would exceed the shareholder's adjusted basis in the S corporation.

Additional modifications to business credits will follow in upcoming articles. Be sure to check for them in the next weeks.

Each adjustment to the tax law applies to businesses differently depending on your business structure, your investments, and your business plan.  The tax professionals at The Tax Office, Inc. are available to answer any questions you may have regarding how the recent changes in tax law may affect your personal or business taxes.