On December 16, Congress passed the Tax Increase Prevention Act of 2014 (TIPA), which the President is expected to sign into law. TIPA retroactively extends many business tax breaks through the end of the 2014 tax year.
If you have made business decisions over the past year on the assumption that the tax breaks would be extended, your bet has paid off. If you've held off on making certain investments until the tax incentives were in place, you now have a narrow window of opportunity to take advantage of the extensions.
The two biggest items that may affect you are the increased expensing allowance and the increased bonus depreciation provisions. For tax years beginning in 2014, you can now expense up to $500,000 of qualified property placed into service in those years (i.e., the Section 179 deduction). Had this tax break not been extended, the maximum amount you could expense for 2014 would have been $25,000. Note that the total amount of property that you can place into service before having to reduce your Section 179 deduction is $2,000,000. The amounts that may be expensed can include up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
As you know, businesses can recover the cost of capital expenditures over time through depreciation. In 2012 and 2013, you were entitled to take 50 percent bonus depreciation for assets placed in service during those years. TIPA extends the 50 percent bonus depreciation provision for qualifying property purchased and placed in service before January 1, 2015 (before January 1, 2016, for certain longer-lived and transportation assets) and also allows you to elect to accelerate some AMT credits in lieu of taking the bonus depreciation.
Bear in mind that if you decide to make any last-minute investments to take advantage of the increased Section 179 expensing limits or the extended bonus depreciation provisions, any assets acquired would have to be placed in service by December 31.
Numerous other favorable tax incentives were extended under the new law. The following is a list of some of the tax provisions that were extended through 2014:
(1) the tax credit for research and experimentation expenses;
(2) the new markets tax credit;
(3) employer wage credit for activated military reservists;
(4) the work opportunity tax credit;
(5) the three-year depreciation for race horses two years old or younger;
(6) the 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
(7) the seven-year recovery period for motorsports entertainment complexes;
(8) the rule for adjusting stock of an S corporation making charitable contributions of property;
(9) the reduction of the recognition period for the built-in gains of S corporations;
(10) the 100 percent exclusion from gross income of gain from the sale or exchange of certain small business stock;
(11) the 9 percent low-income housing tax credit rate for newly constructed non-federally subsidized buildings;
(12) the deduction for contributions of food inventory by taxpayers other than C corporations;
(13) tax incentives for investment in empowerment zones;
(14) the deduction for income attributable to domestic production activities in Puerto Rico;
(15) tax rules relating to payments between related foreign corporations;
(16) rules for the tax treatment of certain dividends of regulated investment companies (RICs); and
(17) the subpart F income exemption for income derived in the active conduct of a banking, finance, or insurance business.
As you can see, the provisions in the Tax Increase Prevention Act of 2014 are quite extensive. Please call our office so we can discuss.