Or, as the New York Times called it, “A Road without a Map.”
Before we go further, I need to insert a caveat; I am an engineer. I am neither a tax consultant nor an accountant. However, if I accomplish nothing else in this article than to encourage you to discuss this further with your accountant or tax consultant, I have succeeded.
Recently I have seen information coming from some capital equipment suppliers indicating that “new” tax credits, particularly as it relates to Section 179, are in effect. That is at best a misleading word game. The so-called extenders, which raised the caps of Section 179 for 2012 and 2013, were not extended. The rules, as of the beginning of 2014, reverted to the 1986 tax law when Section 179 was first introduced.
Simply put, if Congress does not act to extend measures from the American Taxpayer Relief Act of 2012 or institute new measures, the total amount a business can expense in 2014 will be $25,000 plus a possible adjustment for inflation. That adjustment, if allowed, has not yet been determined. Section 179 applies to both new and used capital equipment.
Also, ending in 2013, was the provision for “bonus depreciation”. This had been in place since 2008 and allowed accelerated depreciation for new capital expenditures, including some software.
These are only two of more than 50 favorable tax provisions, many of which applied to businesses, which expired at the end of 2013. Others that you should be aware of include the R&D credit and the Work Opportunity Tax Credit.
The IRS is in the process of writing new rules for the R&D credit but nothing has been finalized. In some ways the current version of the proposed rules are less stringent for manufacturing process changes but other aspects could cause it to be more difficult to qualify.
The Work Opportunity Tax Credit, which was a credit for a portion of the wages for specific segments of the population including veterans and welfare recipients, also ended with 2013.
We are in the early stages of 2014 and Congress could restore some or all of these provisions at any time during the year; and there is precedence to make those provisions retroactive. However, you would be well advised that planning based on these provisions being reinstated is problematical at best and I would suggest ill advised. Check with your tax professional in mid-year to see if any changes have been made or are in the wind. You can also keep yourself informed by checking http://www.section179.org/ or other business sources online.