There are an abundant number of provisions that provide tax relief to small businesses this year. Just so that you don’t overlook any of these benefits, or in case your business would like to position itself to take advantage of some before the close of the year, here is a brief rundown on many of the business benefits that are available for 2011. Some of these provisions are currently set to expire after December 31, 2011.
- Research Tax Credit – A tax credit of up to 20% of qualified expenditures for businesses that develop, design, or improve products, processes, techniques, formulas, or software or perform similar activities. The credit is calculated on the basis of increases in research activities and expenditures.
- Work Opportunity Tax Credit – A tax credit of up to 40% based upon a portion of the first-year wages paid to members of certain targeted groups. The credit is generally capped at $6,000 per employee ($12,000 for qualified veterans and $3,000 for qualified summer youth employees).
- Differential Wage Payment Credit – Employers who have an average of less than 50 employees during the year and who pay differential wages to employees for the periods they were called to active duty in the U.S. military can claim a credit equal to 20% of up to $20,000 of differential pay made to an employee during the tax year.
- HIRE Retention Credit – In 2010, employers were granted a payroll tax holiday for hiring long-term unemployed individuals. As an incentive to retain those individuals, a non-refundable credit up to $1,000 per employee is allowed to employers who kept those employees on payroll for a continuous 52 weeks. The credit is limited to 6.2% of the employee’s wages, and will be claimed on the 2011 return.
- New Energy Efficient Home Credit – An eligible contractor can claim a credit of $2,000 or $1,000 for each qualified new energy efficient home either constructed by the contractor or acquired by a person from the contractor for use as a residence during the tax year. o 100% Bonus Depreciation – Businesses are allowed a 100% bonus depreciation on qualified business property purchased and placed into service during the year. This generally includes machinery, equipment, computers, qualified leasehold improvements, etc. (but see limitations on vehicles).
- Expensing Allowance – In lieu of depreciating the cost of new assets, a business is allowed to deduct up to $500,000 expensed under Code Sec. 179. The $500,000 maximum amount is generally reduced dollar-for-dollar by the amount of Section 179 property placed in service during the tax year in excess of $2,000,000.
- 15-year Write-off for Specialized Realty Assets – Qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service during the year are eligible for a 15-year depreciation write-off instead of the normal 39 years.
- Business Autos – As part of the benefit of the 100% depreciation, the first-year luxury auto limit is increased to $11,060 for autos and $11,260 for light trucks and vans. For vehicles with a gross vehicle rating of over 6,000 pounds, the luxury auto limits do apply and are subject to the full benefit of the 100% bonus depreciation.
- Domestic Production Deduction – This deduction was created to encourage manufacturing and production within the U.S. and provides a deduction equal to 9% of the lesser of net income from qualified production activities or 50% of the W-2 wages paid to employees allocated to the domestic production activity.
If you have questions or wish more detail on any of the provisions or other business issues, please give this office a call.