Fiscal Cliff Deal Includes Important Small Business Tax Provisions

A number of provisions supported by CompTIA that specifically benefit small businesses and technology were included in H.R. 8, the “American Taxpayer Relief Act of 2012,” which Congress voted to pass just before midnight on Jan. 1, avoiding the “fiscal cliff” at the last minute. At 157 pages, the bill has vast implications for taxpayers and the American economy.

Small Business Expensing Limitation Extended

CompTIA has long advocated for extension of the Section 179 expensing limitation, which was scheduled for a dramatic cut in 2013. This expensing limitation has varied over the years, declining from $500,000 in 2011 to $125,000 ($139,000 as adjusted for inflation) in 2012, and was set to be further cut to $25,000 in 2013. However, the legislation just passed will extend the $500,000 limitation retroactively to 2012 and forward through 2013. This is good news – albeit temporary – for small businesses. After 2013, the limitation is again scheduled to drop back to $25,000. Section 179 expensing allows small businesses to deduct the cost of certain asset purchases as opposed to depreciating the acquisition cost over a period of years. This is an incredibly valuable incentive, enabling small businesses to invest in technologies that improve both productivity and the quality of goods and services.

Research and Experimentation Credit Extended

Commonly referred to as the R&D tax credit, this important incentive for innovation had expired at the end of 2011, leaving companies in limbo concerning their investments in technology research. With some technical adjustments, the R&D credit will now be retroactively renewed for 2012 and extended through 2013. Like the Section 179 write-off, this credit will lapse after 2013. CompTIA has continuously supported extension of the R&D credit and we are pleased that Congress has given its support to innovation, which fuels our economy and supports our many small businesses that rely on advancements in technology.

Exclusion of Gain on Small Business Stock Extended

Another important provision for small businesses will allow investors to continue to exclude 100 percent of capital gain from the sale of certain small business stock held for more than five years. This provision had expired at the end of 2011 but will now apply to stock purchased in 2012 and before January 1, 2014. The exclusion is limited to the greater of ten times the taxpayer’s basis in the stock or $10 million of gain. This incentive encourages investments in innovative start-up businesses that support new jobs and spur economic growth.

Bonus Depreciation Extended

Businesses will be permitted an additional 50 percent bonus depreciation deduction through 2013. For assets purchased and placed into service before 2014, businesses will be allowed to write-off an additional 50 percent of the base depreciation already allowed. CompTIA has continually supported this provision. Although the economy now shows signs of improvement, small businesses need continuing support to grow their businesses, and maintain and increase employment.

While we are certainly pleased with the extension of these important tax provisions, much work remains to enact additional provisions that will encourage growth and investment within the small business technology sector. But for the moment, we are relieved and gratified that Congress has stepped forward to provide some much-needed near-term support for CompTIA members and the technology sector.