Hope is fading that Congress will deal with the “fiscal cliff” – the expiring tax relief provisions, pending budget cuts known as sequestration, and the looming debt ceiling – before the elections. The Congressional Budget Office (CBO) recently echoed calls for action by small business coalitions, saying, “In CBO’s judgment, the sharp increases in federal taxes and reductions in federal spending that, under current law, are scheduled to begin in calendar year 2013 are likely to interrupt the recent economic progress, resulting in what would probably be considered a recession.”
The Senate Finance Committee is trying hard to get Congress to at least deal with a few of the less-controversial tax extenders that are important to business and the economy, like the Research and Experimentation Credit and the Alternative Minimum Tax (AMT) income “patch.” The latter is the temporary increase in the incomes levels at which the AMT kicks in. The last AMT patch actually expired at the end of 2011, so if the patch is not re-applied, quite a few taxpayers are already at risk. The Senate Finance Committee patch would cover 2012 and 2013. (The amounts would be $50,600 for individuals and $78,750 for joint returns in 2012 and $51,150 and $79,850 respectively for 2013.)
Also high on the list that is in the bill would be a temporary extension of higher direct expensing allowance amounts. Section 179 of the tax code allows businesses to write off the amount of equipment and asset purchases in the year of purchase up to a certain amount as long as the business does not spend more than a specific total amount on such purchases in a year. Businesses have enjoyed a wave of temporary increases that runs out at the end of 2012.
Current law permits taxpayers to use a direct expensing allowance in 2012 of $125,000. The $125,000 amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $500,000. The $125,000 and $500,000 amounts are indexed for inflation. As a result, for 2012, the adjusted allowance is $139,000 and the phase out is $560,000. At the beginning of 2013, the amounts revert to pre-2003 levels of $25,000 and $200,000 without inflation indexing. The Finance Committee bill would increase the Section 179 expensing amounts and threshold limits to $500,000/$2,000,000 for 2012 and 2013.
The Finance Committee has approved the Family and Business Tax Cut Certainty Act of 2012. It includes roughly 50 items, including the aforementioned items, and comes with a price tag of $205 billion. This is a bipartisan effort and they might be able to persuade the Senate to consider the bill. Unfortunately, in the House of Representatives, the majority in the House Ways and Means Committee has pledged to break the nation’s addiction to these extenders. They are said to favor some but not others, and have not published any definitive list so it is hard to say whether there is a compromise-in-waiting.
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