Business & Tax Insights
By Mark Buescher, C.P.A.
As Madison and the North Florida region continues to slowly emerge from a slumping economy, it’s time to assess the business impact of various tax legislation packages passed by Congress last year.
Most of the tax law changes, particularly the 2010 Tax Relief Act passed on December 17, 2010, have provisions that became effective on January 1 of this year. As with any new legislation, tax planning becomes both more critical and potentially more rewarding.
The tax rule changes actually make 2011 a prime year to consider making key business decisions, namely investing in two important assets: your equipment and your employees.
Relative to investments in equipment, businesses can now write off as much as $500,000 of qualified equipment purchased and placed in service this year. Furthermore, the equipment purchased can be either new or used. This special one year write-off, as opposed to lengthy depreciation write-offs, is definitely one of the most aggressive business provisions Congress has enacted in many years.
Next year, however, the cap drops to $125,000, making 2011 more significant for most businesses, particularly larger ones. The deduction is phased out for businesses with equipment purchases exceeding $2 million.
In addition, brand new equipment can qualify for 100% first-year bonus depreciation if placed in service before the end of this year (or before the end of 2012 for certain types of property). In 2012 the bonus first-year depreciation rate declines to 50%. And don’t forget, energy-saving purchases made this year might also score one of the extended energy tax breaks.
If you happen to be in a retail or restaurant business, another tremendous benefit is an accelerated depreciation write-off not only for equipment, but also for buildings and improvements. The 15-year depreciation write-off for certain leasehold and retail improvements and restaurant buildings and improvements offers a significant benefit as opposed to normal 39-year write-off provisions. These assets will no longer qualify for 15-year depreciation write-offs after 2011. Therefore, the timing of capital improvements is essential.
On the personnel side, some companies with fewer than 25 full-time employees can receive a tax credit of up to 35% of the cost to provide group health insurance. Additionally, employers of all sizes may deduct up to $5,250 of tax-free assistance per worker for qualified higher education expenses. And up to $230 per month of tax-free qualified highway vehicle transportation and transit pass reimbursements can be provided to each eligible employee.
If you are like many businesses, quality child care is usually on the mind of your workforce. If so, consider getting a 25% tax credit by providing child care facilities for your employees. Another 10% credit is allowed for eligible child care resource and referral services. The maximum credit is limited to $150,000, significantly large enough for most employers in our area.
If you are looking to expand your employee roster, a credit is available for hiring workers from approved target groups. Since this tax break is scheduled to end after this year, you may want to consider advancing hiring decisions into 2011.
Whether it is equipment or employees, 2011 may be the year to make significant upgrades to your business. After all, as your business benefits from new tax law changes, investments you make will have a ripple effect on other areas of our economy.
Mark Buescher, CPA is owner and principal of Buescher and Ruff, LLC, a local full service accounting firm in Madison, specializing in tax preparation, business consulting and tax planning. Tax laws contain varying effective dates and numerous limitations and exemptions that cannot be summarized easily. For details and guidance for your specific situation, contact your tax advisor.