Small Business Tax Incentives from New Year’s Tax Deal

Filing taxes

The tax bill passed by Congress on New Year’s day, the American Taxpayer Relief Act of 2012, provides some meaningful tax incentives for small businesses. The goal of these tax incentives is to continue economic growth by spurring innovation, encouraging capital investments, and getting small businesses to hire more new employees.

Here are a few key tax incentives:

R&D Tax Credit: Extension of research and experimentation tax credit, which expired at the end of 2011, through the end of 2013. This also allows companies that made qualifying R&D expenditures in 2012 to apply for the credit retroactively.

Section 179 Depreciation: Extension of ability to depreciate cost of new and used property in first year of service rather than over time. Up to $500,000 in deductions if less than $2 million in capital expenditures.

Bonus Depreciation: Extension of ability to depreciate up to 50% of the cost of new and used equipment in the first year of service through the end of 2013 (and 2014 for some types of property).


Work Opportunity Credit: Extension of tax credits for employing military veterans or certain individuals that face barriers to employment in under-served communities.

Other Credits: Various other favorable tax incentives including: a reduction in the recognition for built-in-gains for s-corporations that convert to c-corporations, a reduction in time for depreciating the costs of leasehold improvements, and extension of the exclusion of gain on Qualified Small Business Stock through the end of 2013.

In addition to the tax incentives above, the American Taxpayer Relief Act of 2012 keeps the same tax rates in place for 98 percent of Americans (though the social security tax rate increased by 2%). Other notable pieces include a permanent patch for the Alternative Minimum Tax by increasing the exemption and indexing it to inflation, and the first permanent estate and gift tax structure in 12 years ($5 million exemption indexed to inflation with 40% rates). More permanent tax rates and the incentives above are good news for privately owned businesses.