President Barack Obama on Jan. 2 signed into law the American Taxpayer Relief Act of 2012. Much of the new law will affect privately held companies and their owners for 2012 and beyond.
The act includes retroactive extensions through 2013 of certain expired individual, business and energy tax provisions. The provisions outlined below are highlights and there are many other provisions that should be considered.
* Individual Tax Provisions. The act includes permanent extensions of certain 2001 and 2003 tax provisions for individuals with incomes below $400,000 and joint filers with incomes below $450,000. For individuals whose taxable income exceeds these thresholds, their top tax bracket will increase to 39.6 percent and their dividends and long-term capital gains will be taxed at 20 percent. The legislation also permanently extends the $5 million estate and gift tax exemption (indexed for inflation).
* Business Tax Provisions. The act includes retroactive extensions through 2013 of certain business tax provisions that had expired at the end of 2011. The renewed provisions include the research credit (with modifications), controlled foreign corporation (CFC) look-through rules and the exception for active financing income.
The extension of the research credit from Jan. 1, 2012 through Dec. 31, 2013 includes provisions that modify rules for taxpayers under common control and rules for computing the credit when a portion of a trade or business changes hands.
In addition, the act extends a 50 percent bonus depreciation provision for qualified property through the end of 2013 and decouples bonus depreciation from the Internal Revenue Code Section 460 percentage of completion method of accounting for assets with a depreciable life of seven years or less that are placed in service in 2013.
It also allows taxpayers to elect to accelerate some alternative minimum tax credits in lieu of bonus depreciation.
The act extends the 100 percent exclusion of the gain from the sale of qualifying small business stock that is acquired before Jan. 1, 2014 and held for more than five years. The act also clarifies that, in the case of stock acquired after Feb. 17, 2009 and before Jan. 1, 2014, the date of acquisition for purposes of determining the percentage exclusion is the date the holding period for the stock begins.
Many other business tax provisions are extended by the act through 2013; these include:
* Fifteen-year straight-line cost recovery for qualified...