Liberalized Section 179 Rules for 2012
The new law increases the maximum Section 179 deduction to $125,000 (adjusted for inflation) for assets placed in service in tax years beginning in 2012. Without this change, the maximum 2012 allowance would have been only $25,000. The new law also increases the phase-out threshold for reduced Section 179 deductions to $500,000 (adjusted for inflation) for tax years beginning in 2012. Without this change, the 2012 threshold would have been only $200,000. The new law also extends the other liberalized Section 179 rules we have become accustomed to: most purchased software costs will continue to be eligible for the Section 179 deduction for tax years beginning in 2012, and Section 179 elections can still be revoked for tax years beginning in 2012. (See IRC Sec. 179.)
Fifteen-Year Depreciation for Leasehold Improvements, Restaurant Property, and Retail Space Improvements Extended through 2011
The new law retroactively restores the 15-year straight-line depreciation privilege for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail space improvements to cover property placed in service in 2010 and extends it to cover property placed in service through 2011. [See IRC Sec. 168(e)(3)(E).] Note that restaurant buildings and improvements and retail improvements that are eligible for 15-year depreciation are ineligible for first-year bonus depreciation. [See IRC Sec. 168(e)(7)(B) and (e)(8)(d).]
Work Opportunity Credit Hiring Deadline Extended through 2011
The new law extends the general deadline for employing eligible individuals for purposes of claiming the Work Opportunity Tax Credit by four months, to cover employees hired through December 31, 2011. [See IRC Sec. 51(c)(4).]
Credit for Employer-Provided Child Care Extended through 2012
The new law extends the employer credit for costs to provide child care for employees for two years, to cover tax years beginning through 2012. Certain costs to acquire, construct, rehabilitate, or expand child care facilities can qualify for the credit. (See IRC Sec. 45F.)
2011 Inflation-Adjusted Retirement Plan Parameters
In News Release IR-2010-108, the IRS announced the 2011 inflation adjusted parameters for tax-advantaged retirement accounts and plans. Many are unchanged from 2010.
- The maximum contribution to a traditional or Roth IRA (or any combination of the two) is $5,000 or $6,000 if the account owner is age 50 or older on December 31, 2011 (unchanged from 2010).
- The maximum employee elective deferral (salary reduction) contribution to a 401(k) plan account remains at $16,500 or $22,000 if the participant is age 50 or older on December 31, 2011 (unchanged from 2010).
- The maximum combined employee elective deferral and employer contribution to a 401(k) plan account remains at $49,000 or $54,500 if the participant is 50 or older on December 31, 2011 (unchanged from 2010).
- The maximum employee elective deferral contribution to a SIMPLE plan account remains at $11,500 or $14,000 if the participant is 50 or older on December 31, 2011 (unchanged from 2010).
- The maximum contribution to a SEP or garden-variety defined contribution plan account remains at $49,000 (unchanged from 2010).
2011 Social Security Tax Ceiling Is Unchanged
The Social Security Administration announced that the 2011 Social Security tax ceiling on wages and self-employment income will remain at $106,800 (unchanged from 2010 and 2009). Remember: the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduces the 2011 Social Security tax withholding rate on employee wages by 2% and the 2011 Social Security tax component of the self-employment tax by 2%.
2011 Standard Mileage Rates
In Rev. Proc. 2010-51, the IRS announced that the standard mileage deduction allowances listed below will apply for 2011.
- Fifty-one cents per mile for business driving (up from 50 cents per mile for 2010). The 51 cents per mile allowance includes 22 cents per mile for depreciation.
- Nineteen cents per mile for driving for medical or moving purposes (up from 16.5 cents per mile for 2010).
- Fourteen cents per mile for charitable driving (this amount is fixed by statute and does not change from year to year).
IRS Issues Forms to Claim Small Employer Health Insurance Credit Along with Guidance
The 2010 healthcare legislation established a new tax credit for qualifying small employers. The credit can cover up to 35% of employee health insurance costs (25% for tax-exempt employers). It is available for tax years beginning in 2010, and it can be claimed for eligible costs that were incurred in 2010 before the healthcare legislation became law. A qualifying small employer is one that (1) has no more than 24 full-time-equivalent (FTE) employees, (2) pays an average FTE wage of under $50,000, and (3) has a qualifying healthcare arrangement in place. The credit is quickly phased out when the number of FTE employees exceeds 10 and when the average FTE wage exceeds $25,000. Phase-out is complete when the number of FTE employees hits 25 or when the average FTE wage hits $50,000. (See IRC Sec. 45R.)
- The IRS has released new Form 8941 (Credit for Small Employer Health Insurance Premiums) which will be used by for-profit employers to claim the credit and an updated version of Form 990-T which will be used by tax-exempt employers to claim the credit (whether they owe unrelated business income tax or not).
- In Notice 2010-82, the IRS released additional guidance on how the credit rules work, including guidance for household employers and employers that subsidize employee healthcare costs through various contribution arrangements.
2011 Parameters for Optional Self-Employment Tax Methods Are Unchanged
Individuals with negative or very low net income from farming or other self-employment activities can elect to use optional methods to calculate their SE tax liabilities. In effect, these optional methods allow qualifying individuals to claim earnings credits for future Social Security benefit eligibility purposes by paying modest amounts of SE tax on deemed (not actual) amounts of SE income. [See IRC Sec. 1402(a)(17) and 1402(l).
2011 Nanny Tax Threshold Is Unchanged
The Social Security Administration announced that the 2011 threshold for paying Social Security and Medicare taxes on a domestic employee's wages (the so-called Nanny Tax threshold) will remain at $1,700 (unchanged from 2010 and 2009). Remember, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the 2011 Social Security tax withholding rate on employee wages by 2%.
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