Last Minute Action by Congress Proposes to Extend Business-Favorable Tax Provisions through 2014December 19, 2014
This week, Congress passed a tax package reinstating more than fifty tax breaks, or “extenders”, for certain business activities occurring in 2014. The extenders cover a range of entities and business practices.
President Obama is expected to sign the Tax Increase and Prevention Act of 2014 (H.R. 5771) into law (“TIPA”).
Action: Businesses and individuals should review all reinstated extenders, but may find those highlighted here particularly relevant. Tax benefits may be available with year-end action.
Businesses and individuals that have already filed tax returns including 2014 should consider filing an amendment to take advantage of applicable extenders.
KEY BUSINESS PROVISIONS INCLUDED IN THE ACT
Research Tax Credit
Businesses will be eligible for tax credits for qualified research expenses paid or accrued in 2014. The value of the credit is calculated as a percentage of qualified research expenditures over a fixed-base percentage of certain receipts and returns. These percentages vary depending on whether the business is a startup or established entity. A simplified formula is also available.
Qualified research expenditures can include wages paid to R&D employees, research supply expenses, and costs for using computers to conduct research. Eligible research projects include a broad range of activities, including experiments and developments geared toward discovering technological information, and developing new or improved business components. IRC Section 41(h)(1), as amended by TIPA Section 111(a).
Exclusion of 100% of Gain on Certain Small Business Stock
The act extends the 100% exclusion for gains recognized by eligible shareholders on “small business stock” to include eligible stock purchased during 2014. In addition, the gains will not be subject to the alternative minimum tax. Section IRC Section 1202(a)(4), as amended by TIPA Section 136(a).
Reduction in S Corporation Recognition Period for Built-In Gains
C corporations that elected S corporation status and S corporations that received basis carryover property from a C corporation are subject to entity level tax on gains built in at the time of such transactions if realized within 10 years. Prior law reduced this period to 5 years. The act retroactively subjects transactions made in 2014 to this same five-year period. IRC Section 1374(d)(7)(C), as amended by TIPA Section 138(a).
Bonus First-Year Depreciation
Businesses and individuals will be eligible for bonus first-year deduction on the adjusted purchase price of qualified property bought and used during 2014. The bonus deduction is equal to one-half of the depreciation value of the qualified property, and is allowed for regular tax, as well as alternative minimum tax.
Qualified property includes certain types of computer software, as well as MACRS-covered property, eligible leasehold improvement property, and water utility property, if the business or individual claiming the deduction was the first entity to use the property. The act also allows eligible leasehold improvement properties to be treated as 15-year properties for tax purposes. IRC Section 168(k)(2), as amended by TIPA Section 125(a).
Please contact Chip Wry to learn more.