Last year there were new tax law changes. 2012 didn’t see a ton of tax law changes, but there are several you need to be aware of. Let’s dive right in, shall we?
*Source: Feuerhelm Langer, Ltd., a St. Paul CPA firm
Write-offs. If you leased or financed used or new machinery or equipment during 2012, you won’t be able to write off as much as you could last year. In 2012, businesses can deduct $139,000 (down from $500,000 in 2011) of the full purchase price (maximum purchase price of $2 million) of leased or financed equipment under Section 179 of the Internal Revenue Tax Code. Off-the-shelf computer software used in business in 2012 is also available for the Section 179 deduction.
Bonus Depreciation. The first year bonus deduction of new equipment was cut in half in 2012: it drops to 50 percent in 2012, down from 100 percent in 2011.
Payroll taxes. The temporary payroll tax cut originally designed to stay in place only until February 29, 2012 was ultimately extended through the end of the year. This means employees continued to see a payroll tax cut of two percentage points through the remainder of the 2012 calendar year. The reduction will continue to hold the Social Security tax withholding rate at 4.2 percent of wages, down from 6.2 percent.
Qualified retirement plans contributions. Up from its 2011 limit of $49,000, employers can contribute up to $50,000 (and receive a tax deduction) to SEPs and profit-sharing plans in 2012. The limit for pension plans (defined benefits plans) benefits is $200,000 in 2012, up from $195,000 in 2011.
Tax-free transportation for employees. For 2012, companies can pay tax-free parking expenses of $240 per month per employer. This is up from $230 in 2011. However, the limit on monthly assistance for van pooling and monthly transportation passes drops from $230 a month in 2011 to $125 in 2012.
Expired R&D credit. Intended to provide deductions for small businesses and startups for research expenses, the R&D credit has expired. However, Congress has reinstated it retroactively in the past, so there’s a possibility it may come back for 2012. Keep a look out.
Worker classification. As part of its “fresh start” initiative, the IRS unveiled a new program entitled the Voluntary Classification Settlement Program (VCSP) to allow employers to reclassify misclassified independent contractors as employees voluntarily for federal employment tax purposes. In exchange for the voluntary reclassification, the IRS will offer a reduced employment tax liability of 10 percent, no interest or penalties, and no employment tax audit.
What’s the Bottom Line?
It’s a good idea to meet with your tax advisor early in the year to review the 2012 tax law changes. This will not only help you save on 2012’s tax bill, but budget more accurately for the remainder of the year.