Due to the current economic environment, Congress has passed and signed into law numerous tax-related bills that impact businesses.
What follows is an executive summary of some of the more important pieces of legislation that were enacted in 2010 that continues to impact the Life Sciences industry in 2011.
Incentives for Businesses to Invest in Machinery and Equipment
Expanded Section 179 Expensing
- For tax years beginning in 2011, the maximum Code Section 179 expensing amount is $500,000 and the phase out is between $2,000,000 and $2,500,000 of additional investment.
- The amount of the deduction is limited to the amount of taxable income from any of the taxpayer’s trades or businesses. Any excess amount is carried over indefinitely until it can be deducted.
- In addition, the taxpayer can elect up to $250,000 of “qualified real property” as Section 179 property. This is defined as: (1) qualified leasehold improvement property, (2) qualified restaurant property, and (3) qualified retail improvement property.
- Note that for purposes of applying the $500,000 expensing limitation, no more than $250,000 can be attributed to qualified real property. Also, no unused deduction attributable to qualified 2010 or 2011 real property can be carried over to a tax year beginning after 2011.
Revived Bonus Depreciation for 2011
- 100% bonus depreciation is available for qualified assets placed in service after September 8, 2010 and before January 1, 2012
- To qualify, assets must be brand new (used items are specifically excluded) and located in the U.S. Real Estate and certain other asset types may not be eligible.
Five-Year Carryback of Unused General Business Credits
- The general business credit (GBC) generally cannot exceed the excess of the taxpayer's net income tax over the greater of (1) the taxpayer's tentative minimum tax or (2) 25 percent of the portion of the taxpayer's net regular tax liability that exceeds $25,000.
- For certain credits the tentative minimum tax is treated as zero so they can offset both regular tax and AMT.
- The carryback period was extended from one to five years for eligible small business (ESB) credits determined in tax years beginning in 2010. In addition, these credits may be eligible to be carried forward up to 25 years.
- ESBs are businesses that (1) are either corporations the stock of which is not publicly traded, partnerships or sole proprietorships and (2) have average annual gross receipts for the three-year period preceding the tax year, of no more than $50 million.
First Year Depreciation Cap for Autos and Trucks
- Depreciation deductions that can be claimed for passenger autos, light trucks and vans are subject to dollar limits that are annually adjusted for inflation. The first year depreciation limits were increased. For 2011, the maximum first-year depreciation for passenger automobiles is $11,060 ($11,260 for light trucks).
- The deduction for startup expenses is $5,000 and the phase-out threshold is $50,000. Any remaining amount may be recovered ratably over 180 months, starting with the month the active trade or business began.
- The Research Credit was extended through 2011. The Research credit provides a credit of 20% of the taxpayers qualified research expenditures that exceed a calculated base amount. The Alternative Simplified Credit is equal to 14% of the taxpayers qualified research expenditures that exceed 50% of the average qualified expenditures for the previous three years.
Tax Credit for Health Insurance Premiums
- From 2010-2013, eligible employers (fewer than 25 employees and employee average annual full-time equivalent wages do not exceed $50,000) may qualify for a tax credit of up to 35 percent of their contribution toward employees’ health insurance premiums.
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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