The "fiscal cliff" agreement reached by the President and Congress in January included extensions of several small-business tax incentives designed to spur innovation, support critical capital investment, and make it easier to hire new workers.
Here are some of the key incentives your business may be able to take advantage of:
- R&D tax credit. The law extends the research and experimentation tax credit (popularly known as the R&D credit), which had officially expired at the end of 2011, through 2013. In addition the law allows businesses to apply the credit retroactively to investments made in 2012.
- Section 179 deduction. Section 179 of the tax code permits small businesses to deduct the cost of certain new and used property placed in service for the year rather than depreciate those costs over time. The new law extends the maximum deduction to $500,000 for the 2012 and 2013 tax years for companies with under $2 million in qualifying capital expenditures.
- Bonus depreciation. The bonus depreciation provision enables small businesses to recover the costs of qualified new equipment faster than the ordinary schedule by permitting the depreciation of 50% of the cost in the first year. The provision was set to expire at the end of 2012 but has been extended through the end of 2013 (and 2014 for certain types of property).
- Work opportunity tax credit. The new law extends through 2013 the tax credits for employers who hire military veterans or individuals from underserved communities that have faced barriers to employment.
Other Small-Business Tax Credits
A handful of other targeted tax credits were extended for 2012 and 2013, including:
- The new markets tax credit for businesses that invest in certain community development entities and other qualified investments
- A reduction in the recognition period for S-corporation built-in gains tax
- A reduction in the time from 39 years to 15 for a business to recover the cost of certain leasehold improvements and restaurant and retail property