The Ups and Downs of the American Taxpayer Relief Act

The American Taxpayer Relief Act (ATRA) extended a number of business tax credits through 2013 and changed more than 30 credits and deductions that range from the Expense Mine Safety Equipment Credit to the American Samoa Economic Development Credit. Some of the most useful credits for business owners include:

  • The Housing Allowance Exclusion for Qualified Residential Rental Projects
  • The Employee Wage Credit for Active Military Duty
  • The New Markets Tax Credit
  • The 15-Year Straight Line Cost Recovery for Leasehold Improvements
  • The Work Opportunity Tax Credit
  • The Empowerment Zone Tax Incentives
  • The Reduction in the Recognition Period for S-Corp Built-in Gains Tax

One important provision of ATRA is Section 179, which is about expensing asset purchases. It allows small businesses to write off the full purchase cost of a qualifying asset rather than the cost of the item assuming several years of depreciation. The limit on such write-offs was $25,000 last year. For 2013, it has increased to $500,000 providing small businesses enormous write-off power if they purchase significant business assets in 2013.

ATRA also extended the tax credit for hiring veterans that expired for the year 2012, and in fact expanded it so that most small businesses can get a $5,600 tax credit for hiring a veteran and $9,600 for hiring a disabled veteran.

The Big Minus Sign

Possibly the largest negative impact that ATRA will have on many businesses is the increase in the capital gains tax, which ticked up 5% to a maximum of 20% this year for filers making over $400,000 (or $450,000 filing jointly). The general thinking is that an increase of that size may discourage investment in businesses, which will in turn make it harder for businesses to obtain funding for new projects. Whether or not that thinking holds true has yet to be seen, but the prevalence of the fear in its own right may discourage investing; regardless of whether or not the actual monetary effects are real.

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