Although it’s only October, we need to make you aware that there are a number of tax breaks that are available this year but may not be around next year, or may survive only in diluted form. Since there is still considerable uncertainty regarding tax law under the current political climate, we advise you to take advantage of these expiring provisions, if applicable, and avoid any negative impact to future legislation.
As usual, we will publish our year end tax planning guide in mid-November. In the meantime, here are the provisions set to expire at the end of this year:
- Research credit. The research credit only applies for amounts paid or accrued before Jan. 1, 2012.
- Work Opportunity Tax Credit (WOTC). The WOTC) allows employers who hire members of certain targeted groups to get a credit against income tax of a percentage of first-year wages up to $6,000 per employee.
- 100% bonus depreciation. The 100% bonus depreciation allowance applies only for qualified property acquired and placed in service after Sept. 8, 2010 and before Jan. 1, 2012 (placed in service before Jan. 1, 2013 for certain aircraft and long-production-period property). For qualified property acquired and placed in service after Dec. 31, 2011 and before Jan. 1, 2013 (placed in service after Dec. 31, 2012 and before Jan. 1, 2014 for certain aircraft and long-production-period property), a 50% bonus depreciation allowance will apply. If you are expecting on making any major business asset acquisitions, 2011 is the most tax advantaged year for such purchases.
- Expensing allowance. The maximum amount that may be expensed under Code Sec. 179 for tax years beginning in 2010 or 2011 is $500,000. For tax years beginning in 2012, the maximum amount will be $125,000 (indexed for inflation with 2006 as the base year). For tax years beginning in 2010 and 2011, the maximum annual expensing amount generally is reduced dollar-for-dollar by the amount of section 179 property placed in service during the tax year in excess of $2,000,000 (the investment ceiling). For tax years beginning in 2012, the investment ceiling will be $500,000 (indexed for inflation with 2006 as the base year).
- Additionally, if placed in service in a tax year beginning in 2010 or 2011, up to $250,000 per year of qualified real property is eligible for Code Sec. 179 expensing.
- 15-year writeoff for specialized realty assets. Qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property placed in service after Dec. 31, 2011, will no longer be eligible for a 15-year depreciation writeoff under MACRS. Instead, such property will have to be depreciated over 39 years.
- Enhanced charitable contribution deductions for appreciated property contributed by C Corporations and S Corporations.
- Expensing election for costs of film and TV production. Taxpayers may elect to expense production costs of qualified film and television (TV) productions in the U.S., but only for productions commencing before Jan. 1, 2012.
- Expensing of environmental remediation costs. Taxpayers may elect to treat qualified environmental remediation expenses that would otherwise be chargeable to a capital account as deductible in the year paid or incurred, but only if the expenses are paid or incurred before Jan. 1, 2012.
- Domestic production activities deduction for Puerto Rico.
- Empowerment Zone tax breaks. The designation of an economically depressed census tract as an “Empowerment Zone” makes businesses and individual residents within such a Zone eligible for special tax incentives expires on Dec. 31, 2011.
Miscellaneous Provisions Expiring on Dec. 31, 2011
- The 7-year straight line cost recovery period for motorsports entertainment complexes won’t apply for property placed in service after Dec. 31, 2011.
- The Indian employment credit only applies for tax years beginning before Jan. 1, 2012.
- The railroad track maintenance credit applies through 2011.
- The mine rescue team training credit applies through 2011.
- A taxpayer may claim a 30% credit for the cost of installing qualified alternative vehicle refueling property for use in the taxpayer’s trade or business (up to $30,000 maximum per year per location) or installed at the taxpayer’s principal residence (up to $1,000 per year per location). This credit won’t apply to property (except for hydrogen refueling property) placed in service after Dec. 31, 2011.
Keep your eye out for our year end planning guide and legislative updates. If you have any questions regarding these expiring provisions, please do not hesitate to contact us.