As we move towards Labor Day, and the unofficial end of summer, our attention will soon turn (or be pulled) to the upcoming mid-term November elections. Quickly thereafter, attention will turn equally as fast to potential year-end tax legislation.
We last visited this during April of this year when the Senate Finance Committee passed (voted out of committee) a tax extenders bill with very strong, albeit rare, bipartisan support. This bill was affectionately entitled EXPIRE — the Expiring Provisions Improvement Reform and Efficiency Act. Very few expected this to pass in the full senate and arrive at the House of Representatives full of strong positive momentum.
The bill ultimately failed a procedural hurdle in the Senate by a vote of 53-40 in order to come before the full Senate for a vote. The procedural hurdle involved objections over not being allowed to offer certain amendments, specifically one which proposed the repeal of the Affordable Care Act’s medical device tax.
The EXPIRE bill would extend virtually all of the tax relief provisions known as “tax extenders” until the end of 2015. This also included some significant enhancements for businesses within areas of R&D credit and IRC 179D deduction. For example, the legislation includes an amendment introduced by Sens. Charles Schumer, D-NY, and Pat Roberts, R-Kan., which provides that certain companies may claim an R&D credit of up to $250,000 against payroll taxes. This provision was written to apply to companies that are newer than 5 years old and whose gross receipts are less than $5 million.
For those who remember the AMT tax relief bonanza from 2010, this bill also allows individuals to claim the R&D credit against individual AMT for both 2014 and 2015. This particular provision was very popular with flow through business owners such as S corporations and partnerships. It translated into very substantial tax relief.
Related to the IRC 179D deduction, the proposed legislation allows nonprofit entities and tribal governments to allocate 179D deductions to designers of qualifying property (assumedly for profit companies who can benefit from the actual tax deduction). The legislation also updates the standards for determining the degree of a facility’s energy efficiency. For example, starting in 2015, the baseline standard will be the 2007 American Society of Heating, Refrigeration and Air-Conditioning Engineers standards.
Beyond these two examples, EXPIRE also included more than 50 tax provisions that expired at the end of 2013. For individuals, examples include mortgage tax relief, a deduction for state and local sales taxes, education tax deductions, and tax-free contributions from individual retirement accounts for charitable purposes.
For businesses, additional items included increased expensing under Section 179 (full deduction on cost of qualifying equipment) for which the limit fell from $500,000 to $25,000 in 2014; restored 50 percent bonus depreciation; the work opportunity tax credit; and tax breaks promoting renewable energy.
As you can see, there is a tremendous amount of tax relief and credit programs specifically geared towards and crucial for business owners. Business owners often inject that tax relief generated cash-flow right back into their operations in the form of big ticket capital items as well as the expansion of their physical plant or human resources.
Many professionals and experts feel (and hope) there is a legitimate path for the framework of this bill to resurface over the next four months and eventually lead to actual 2014 legislation that would bring these items to reality for both 2014 and 2015. Let’s stay tuned and hope for just that — a bipartisan tax bill which ultimately has such universal benefits to our business community.
James P. Schnell, CPA/ABV, CVA is the tax director at Mengel, Metzger, Barr & Co LLP and may be reached at (585) 423-1860 or JSchnell@mmb-co.com.