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Thursday, December 5, 2013

Let’s Give Congress Some Credit…


The saying that, “The more things change, the more they stay the same,” has been around for hundreds of years and can be used to describe the major provisions of the 2012 “Fiscal Cliff” Legislation or “The Act.”

After trying to dissect all 153 pages of The Act, and the hundreds of additional pages of analysis and other materials that have been written to explain the act, I was struck by the accuracy of a young colleague’s summation of The Act. She said, “So, in general, nothing has really changed except the wealthy are taxed at higher rates, is that correct?” I had to say, “Well, yes, that’s about right.”

For the past several years, when Congress has given taxpayers some sort of benefit (i.e., in the form of special deductions or credits against tax), due to budget constraints, a sunset date was usually placed on these benefits. Well in 2012, it was going to be a tsunami-sized sunset with many important tax deductions and credits set to expire. But at the end of 2012, The Act pushed the cliff further into the future, and in general, extended most of these benefits in the same form as they had been available in 2011 and 2012. To make this happen, hundreds of changes to tax laws had to be made to keep things about the same as they were in 2012.

Many of these changes are discussed throughout this newsletter. Since many of the tax credit programs were extended, I thought this may be a good time to remind our readers about the popular types of credits that are still out there and can be taken advantage of… at least until the next “cliff.”

Research Tax Credit (the R&D Tax Credit): Extended through 2013, this credit is available to businesses who engage in activities to (a) develop or improve a business component, (b) are technical in nature, (c) that include a component of uncertainty, and (d) are arrived at through a process of experimentation. Industries that can take advantage of this credit range from high tech industries to food manufacturing, so feel free to contact us to see if your business can take advantage of these credits.

Work Opportunity Tax Credit: Extended through 2013, this credit provides an incentive to employers for hiring employees from certain targeted groups (generally hard-to-employ workers) with a credit of 40% of the first $6,000 of wages paid to the new employees.

Empowerment Zone Credit: Also extended through 2013, employers are allowed up to a $3,000 credit per employee if that employee works and lives in a federally designated empowerment zone.

Child Tax Credit: Provides for a credit up to $1,000 per child for certain taxpayers (subject to income limitations).

Child & Dependent Care Credit: Provides for a credit up to $3,000 for one child or $6,000 for two or more (subject to income limitations).

American Opportunity Tax Credit: Rewards up to $2,500 per year to help offset tuition and school expenses for the first four years of post secondary education.

Individual Energy Credit: Lifetime credit offers up to $500 for individuals making energy efficient changes to their homes.

And for those who love “pork,” the Railroad Track Maintenance Credit and the American Samoa Economic Development credit have remained intact as well as several other of these types of incentives.

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