Tennis Industry magazine

 

Finances: ‘Fiscal Cliff’ Package Offers Tax Savings Opportunities

By Mark E. Battersby

The so-called “Fiscal Cliff” tax package recently passed by Congress and signed into law renewed more than 50 temporary tax breaks through 2013, saving individuals and businesses an estimated $76 billion. Admittedly, single individuals with incomes above the $400,000 level and married couples with income higher than $450,000 will pay more in taxes in 2013 because of a higher 39.6 percent income tax rate and a 20 percent maximum capital gains tax.

In fact, employees will find less in their paychecks in 2013 because the American Taxpayer Relief Act did not extend the payroll tax holiday that had reduced Social Security payroll deductions from 6.2 percent to 4.2 percent on earned income up to the Social Security wage base ($113,700 for 2013). It is a similar story for the self-employed.

For the owners and operators of small- and medium-sized tennis retailers and facilities, there is good news and bad news in the fiscal cliff tax laws. First, the good news: Greater certainty in taxes. The owners and operators of many businesses have grown used to many longstanding tax breaks but they also have had to get used to the uncertainty of whether they will be renewed each year. While many tax breaks were allowed to expire at the end of 2011, the new tax law renews them retroactively, allowing tennis facility operators, retailers and other business owners to claim them on both their 2012 and 2013 tax returns.

Equipment and Facilities

To be eligible for bonus depreciation, property must be depreciable under the standard MACRS system, and have a recovery period of less than 20 years. Code Section 179 first-year expensing remains a viable alternative especially for small businesses. Property qualifying for the Section 179 write-off may be either used or new in contrast to the bonus depreciation requirement that the taxpayer be the “first to use.”

The part of the tax laws that imposes dollar limits on the annual depreciation deductions for cars and light trucks used in business operation is also impacted by the new bonus depreciation rules. If bonus depreciation had not been extended, the 2012 tax year would have been the final year in which substantial first-year write-offs for buyers of business automobiles would be available.

Strictly Business

Among the business provisions in the new law are:

Estate Taxes Never Die

Always of significant interest to family-owned businesses, the estate tax has long been a bit of a mixed bag — the $5 million per person exemption was kept in place (and indexed for inflation continued), however the top rate is increased to 40 percent — effective date Jan. 1, 2013. This change to 40 percent increased revenues from 2012 policy by $19 billion.

Other good news for estate planning — portability is kept in place and estate and gift remains unified — i.e., the $5 million stays in place for gift tax purposes as well. And it is all permanent.

Opportunities Abound

The majority of tennis facilities, retailers and many other businesses operate as pass-through entities, such as partnerships and S corporations. Profits are passed through to their individual owners and therefore are taxed at individual income tax rates. A regular “C” corporation, with its current tax rate of 35 percent, may become more attractive with rates rising to 39.6 percent for some individuals.

Many popular but temporary tax extenders relating to businesses were included in the American Taxpayer Relief Act. Unfortunately, the Act is not the grand bargain envisioned by lawmakers and promised to taxpayers. Despite the Code Section 179 small-business expensing, bonus depreciation, and the Work Opportunity Tax Credit, the new law is essentially only a stop-gap measure designed expressly to prevent the onus of the expiration of the Bush-era tax cuts from falling on middle-income taxpayers. Congress must still address spending cuts and may even tackle tax “reform.”

The time is now — hopefully before filing your business’s 2012 tax returns — for every tennis facility operator, retailer and business owner or manager to consult with their accountants and/or tax professionals to focus on the potential savings offered by these newly revised, extended and expanded business credits, deductions and tax write-offs. 

Mark E Battersby is a tax advisor in Ardmore, PA.

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About the Author

Mark E. Battersby is a tax advisor and author in Ardmore, Pa.

 

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