Tax Provisions Expiring After December 31, 2011
By Scott C. Miller
Certain favorable provisions in the tax laws for businesses are set to change or expire entirely after December 31, 2011. While it is possible that Congress may choose to extend some of these provisions, there is no guarantee that the provisions will be available to the same extent in 2012. Please consider your particular situation in light of the following tax savings opportunities:
- 100 percent bonus depreciation. Businesses that are considering purchasing depreciable property in the near future should consider buying and placing the property in service in 2011. Bonus depreciation decreases from 100% to 50 % on January 1, 2012. Keep in mind that this bonus depreciation is allowed in full for eligible property, regardless of the length of time the asset is in service during 2011.
- Section 179 expensing deduction. For assets placed in service during the year, taxpayers can deduct as an expense, rather than depreciate over the useful life, the cost of new or used tangible personal property, up to a specified limit. For tax years beginning in 2011, the dollar amount of the expense limitation is $500,000. This limitation will drop to $125,000, indexed for inflation, for tax years beginning in 2012.
- Take advantage of real property expensing. For a limited time only, Section 179 expensing (referenced in the preceding section) is available for qualified real property. Historically, only tangible personal property qualified for this advantageous treatment. For tax years beginning in 2011, up to $250,000 of qualified real property can be treated as Section 179 property. For expensing purposes, qualified real property includes qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property, as described in Section 168(e). The tax treatment for these properties reverts to straight-line depreciation over 39 years for tax years beginning in 2012.
This is also a good time to analyze the basis in any partnerships or S corporations. If an S corporation or a partnership incurs a loss in a given year, the shareholder/partner will not be allowed to deduct the loss on their personal income tax return unless they have sufficient basis. Prior to year-end, however, they can loan the corporation sufficient funds to increase their basis, which allows them to utilize the loss currently, rather than carrying the loss forward.
Bear in mind as well that the Illinois income tax rates increased, effective January 1, 2011. For C corporations, the Illinois corporate income tax rate increased from 7.3% to 9.5%; for individuals, the rate increased from 3% to 5%. Additionally, Illinois has suspended the ability for C corporations to utilize any net operating losses for tax years ending after December 31, 2010 through December 31, 2014.
