Tax Alert: Year-End 2013 Tax Planning for Businesses

December 2013

The "sunset" is upon us. The American Taxpayer Relief Act of 2012 ("ATRA") contained a number of tax-payer friendly provisions which are all set to expire December 31, 2013. Unless something radically changes in Washington, D.C., the sun will set on these provisions making them unavailable in 2014 and beyond.

Code Section 179: The ATRA provided for enhanced depreciation, which allowed companies to elect to expense the costs of qualifying property rather than treating it as a capital acquisition subject to the depreciation rules. The annual dollar limitation on Code Section 179 expensing is $500,000 for 2013. Barring congressional action, in 2014 the annual dollar limitation will drop to $25,000. Similarly, the phase-out cap for 2013 of $2.5 million will drop to $200,000 for 2014.

Beginning in 2014, off-the-shelf software and "qualified real property" (certain leasehold improvements, restaurant property, and retail improvement property) will no longer qualify for Code Section 179 treatment.

Bonus Depreciation: The ATRA generally allowed 50% bonus depreciation during 2012 and 2013. The bonus depreciation provided by the ATRA expires at the end of 2013 for most property - exceptions include certain noncommercial aircraft and longer production period property.

Along with the sunset of bonus depreciation, the additional $8,000 first-year depreciation cap on passenger cars under § 280F will not be available in 2014.

15-Year Recovery Property: The ATRA allowed certain qualified leasehold property, qualified retail improvement property, and qualified restaurant property to be depreciated over a 15-year economic life. In order to qualify for this accelerated recovery period, property must be placed in service before January 1, 2014.

Research Tax Credit: The ATRA extended the § 41 research tax credit through the end of 2013. No action has been taken to date to resurrect the § 41 credit.

S-Corporation Built-In-Gains: The ATRA allowed for a reduced recognition period of five years on dispositions of property with built-in-gains. After December 31, 2013, built-in-gain property must be held for 10 years to avoid the corporate level tax on disposition.

Other Key Items to Take Note of: The repeal of DOMA and the IRS's recognition of same sex marriage. Please see our Sussman Shank Fall 2013 Winter 2014 Newsletter for a more complete discussion.

The Employer Mandate of the ACA is delayed until 2015.

If you would like more details or have questions about managing the sunset of these provisions, please do not hesitate to contact us.

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