Industry Insights

As year-end approaches, taxpayers should be aware of business tax provisions that may not survive past 2011. Below is a brief summary of a few of those credits and deductions, which businesses may want to consider as they plan for the rest of 2011.

New Markets Tax Credit:  This credit may be available to a taxpayer who holds a qualified equity investment in a qualified community development entity (CDE). An eligible taxpayer may take 39 percent of the qualified equity investment as a credit over a seven-year period. The taxpayer may claim a 5 percent credit in each of the first three years and 6 percent in each of the last four years.

Research credit:  This credit is the sum of 20 percent of the excess of qualified research expenses for the year over the base amount, 20 percent of the basic research payments and 20 percent of the amounts paid or incurred by the taxpayer during the tax year to an energy consortium for energy research.

Work Opportunity Tax Credit:  This credit offers employers a credit equal to a percentage of qualifying first-year wages for employees in targeted groups under Internal Revenue Code (IRC) Sec. 51, i.e., qualified veterans, qualified ex-felons or qualified summer youth. This credit is capped at $6,000 per employee in most cases and is equal to 40 percent of qualifying first-year wages for employees who have worked at least 400 hours. For those who have worked at least 120 hours but less than 400 hours, the credit is 25 percent of qualifying wages.

Empowerment Zone tax incentives:  The Empowerment Zone designation offers businesses and individuals tax breaks such as a 20 percent wage credit, an additional $35,000 of Sec. 179 expensing with only 50 percent of the eligible property counting toward the phase-out amount, tax-exempt bond financing and deferral of capital gains tax for certain assets.

100 percent bonus depreciation deduction [IRC Sec. 168(k)]:  This deduction is only available for qualifying property placed in service after September 8, 2010, and before January 1, 2012. Certain aircraft and long-term, production-period property must be placed in service before January 1, 2013. For qualifying property placed in service after December 31, 2011, and before January 1, 2013, the 50 percent bonus depreciation allowance will be applicable. The 50 percent bonus applies to certain aircraft and long-term, production-period property placed in service after December 31, 2012, and before January 1, 2014.

IRC Sec. 179 expensing allowance:  For tax years beginning in 2010 and 2011, the maximum expensable amount under Sec. 179 is $500,000, with a phaseout beginning when the qualified investment surpasses $2 million. Taxpayers also are allowed an additional $250,000 per year for years starting in 2010 and 2011 for certain qualifying real property. In 2012, the maximum eligible amount to be expensed under Sec. 179 is $125,000, and the investment ceiling will be $500,000, indexed for inflation.

Environmental remediation cost expensing:  For qualified environmental remediation expenditures paid or incurred on or before December 31, 2011, taxpayers may deduct them rather than charging them to a capital account. Qualified environmental remediation expenses are those paid or incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site.

Alternative fuel credit:  Eligible taxpayers are allowed a 50 cents per gallon credit on alternative fuel or alternative fuel mixtures sold or used by the taxpayer. To take advantage of this credit, taxpayers must be registered with the IRS as an alternative fueler.

For help determining potential benefits for your business, or to discuss additional provisions that will expire, contact your BKD tax advisor.