More Than 65 Tax Provisions Set to Expire

December 13, 2011

In addition to the ongoing debate over extending–and potentially expanding–the payroll tax cut into 2012, there are more than 65 other tax provisions which are set to expire at the end of 2011, including the R&E (also commonly referred to as the R&D) tax credit, bonus depreciation and the current $500,000 threshold for section 179 expensing.

Although not all of these are likely to impact the small-business community, some are very important to small businesses. Unfortunately, it is likely that Congress will leave for the holiday recess without extending them. It is expected that, upon their return in January, some of the tax cuts may well be retroactively extended, but most will most likely just expire.

Section 179 and Bonus Depreciation

The latest iteration of the House Republican payroll tax cut and unemployment benefits extension bill, The Middle Class Tax Relief & Job Creation Act (H.R. 3630) does not extend the current section 179 expensing threshold but does extend for one year so-called bonus depreciation. The bonus depreciation provision will reduce revenues by about $6 billion over ten years.

For 2011, up to $500,000 of investment purchases may be deducted under section 179 expensing rules as approved under 2010’s Small Business Jobs and Credit act which increased significantly section 179 expensing. This was just a temporary increase, however and the limit is set to drop back down to $125,000 in 2012, and fall even further in 2013 to $25,000. A failure of Congress to act to extend the expanded levels allowed under section 179 expensing will dramatically limit the number of firms that can benefit and reduces the economic effect of the provision. Retaining the current $500,000 threshold is of vital importance to the economy and to small businesses.

Bipartisan legislation has been introduced in the House by Reps. Richard Hanna (R-N.Y.) and William Keating (D-Mass.) and in the Senate by Sens. Chris Coons (D-Del.) and Marco Rubio (R-Fla.) to address this issue. That legislation, the AGREE Act (S. 1866, H.R. 3476) would extend the current expensing threshold and the R&E tax credit through 2014.

Please click here to see NSBA’s letter of support on the AGREE Act.

Research and Experimentation Tax Credit

First enacted in 1981, the Research and Experimentation (R&E) Tax Credit—also commonly referred to as the R&E credit—is set to expire at the end of 2011. Legislation has been introduced in both the Senate and the House to extend the credit. The bill introduced by Sens. Claire McCaskill (D-Mo.) and Susan Collins (R-Maine) (S. 1960) would extend the R&E tax credit for one year. This bill would also cut employer payroll taxes by two percentage points for one year and raise income taxes by two percentage points on income over $1 million, while excluding income from small business sources.