President Obama officially signed the Tax Increase Prevention Act of 2014 (TIPA) into law, extending several provisions that expired at the end of 2013.

There is one new item included in TIPA - a tax favored account for people with disabilities. The Achieving a Better Life Experience (ABLE) Act seeks to aid families in covering certain expenses, such as medical, education, housing and transportation. Further guidance will need to be issued regarding the account, which will be available for tax years beginning after December 31, 2014.

Provisions Affecting Businesses

TIPA provisions most relevant to businesses include:

50% bonus depreciation. This additional first-year depreciation allows businesses to recover the costs of depreciable property more quickly for qualified assets. Qualified assets include new tangible property with a recovery period of 20 years or less (such as office furniture and equipment), off-the-shelf computer software, water utility property and qualified leasehold improvement property. The provision also allows corporations to claim unused alternative minimum tax credits in lieu of bonus depreciation.

The bonus depreciation extension generally applies only to property placed in service in 2014, which, unfortunately, doesn’t leave much time if a purchase has not already been made.

Sec. 179 expensing election. TIPA extends higher limits under Sec. 179 of the Internal Revenue Code, which permits businesses to immediately deduct — or “expense” — the cost of qualified assets (such as tangible personal property and off-the-shelf computer software) purchased for use in a trade or business in the year they’re placed in service, instead of recovering the costs more slowly through depreciation deductions.

Because of the extension, a business can deduct up to $500,000 in qualified new or used assets. The deduction is subject to a dollar-for-dollar phaseout once the cost of all qualifying property placed in service during the tax year exceeds $2 million, meaning smaller businesses generally reap the greatest benefit. The expensing election can be claimed only to offset net income, not to reduce net income below zero. Without the extension, the limit for 2014 would have dropped to $25,000, with a $200,000 phaseout threshold.

Depending on the actual purchase, taxpayers will want to evaluate the benefits of Sec. 179 expensing versus bonus depreciation and consider any state tax consequences as well.

Depreciation-related breaks for qualified leasehold improvement, restaurant and retail-improvement property. TIPA extends the ability to:

• Apply up to $250,000 of the $500,000 Sec. 179 expensing limit to such property, and
• Apply a shortened recovery period of 15 years, rather than 39 years, to such property.

R&D credit. The credit, generally equal to a portion of qualified research expenses, is complicated to calculate but can result in substantial tax savings

Work Opportunity credit. This credit is available to employers hiring from certain disadvantaged groups, such as food stamp recipients, ex-felons and veterans who have been unemployed for four or more weeks. The maximum credit ranges from $2,400 for most groups to $9,600 for disabled veterans who have been unemployed for six months or more.

Transit benefit parity. TIPA extends the provision that established equal limits for the amounts that can be excluded from an employee’s wages for income and payroll tax purposes for parking fringe benefits and van-pooling / mass transit benefits. The limits for both types of benefits are now $250 per month for 2014. Without the extension of parity, the limit for van-pooling / mass transit would be only $130.

Contact Elek & Noss CPA's at 440-926-9300 with questions on this or any tax or accounting need.