Small Business Tax Incentives in the Fiscal Cliff Deal

America’s 28 million small businesses are the backbone of our economy. This past week, the Taxpayer Relief Act of 2012 delivered them some really good news.

The solution reached by the President and Congress included extensions of several small businesses tax incentives designed to spur innovation, support capital investment, and make it easier to hire new workers.   In fact, the legislation extended some of the most important tax credits that the President signed into law during his first term.  In addition, under this law, more than 98 percent of Americans and 97 percent of small businesses will not see their income taxes go up, avoiding a negative impact on small business revenues.

Our economy is gaining momentum. Small businesses continue to drive innovation and job creation in industries across the country. Our goal is to make sure these entrepreneurs have the wind at their backs and the access and opportunity they need to grow their operations, reach new customer and create jobs in our communities.

Below are some of the key tax incentive extensions your business could be using today. Whether you’ve made R&D or equipment investments or hired veteran employees, you stand to benefit from one or more of the extended tax incentives.  What’s more, small businesses looking for investors can benefit from the 100 percent exclusion of gain on small business stock. 

R&D Tax Credit.  The law extends the research and experimentation tax credit (popularly known as the R&D credit), which had officially expired at the end of 2011, through 2013.  In addition the law allows businesses to apply the credit retroactively to investments made in 2012.

Section 179 Deduction. Section 179 of the tax code permits small businesses to deduct the cost of certain new and used property placed in service for the year rather than depreciate those costs over time.  The new law extends the maximum deduction to $500,000 for the 2012 and 2013 tax years for companies with under $2 million in qualifying capital expenditures.

Bonus Depreciation. The bonus depreciation provision enables small businesses to recover the costs of qualified new equipment faster than the ordinary schedule, by permitting the depreciation of 50 percent of the cost in the first year. The provision was set to expire at the end of 2012, but has been extended through the end of 2013 (and 2014 for certain types of property).

Work Opportunity Tax Credit. The new law extends through 2013 the tax credits for employers who hire military veterans or individuals from underserved communities that have faced barriers to employment.

Other Small Business Tax Credits. There are a handful of other targeted tax credits that were extended for 2012 and 2013, including: the new markets tax credit for businesses that invest in certain community development entities and other qualified investments; a reduction in the recognition period for S-corporation built-in gains tax; and a reduction in the time from 39 years to 15 over which a business can recover the cost of certain leasehold improvements and restaurant and retail property; among other targeted provisions.

About the Author

Karen Gordon Mills is the Administrator of the U.S. Small Business Administration. The SBA helps both Main Street and high-growth small businesses get access to capital, counseling, federal contracts, disaster assistance and more.