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Tax Tip: Over the Fiscal Cliff for Tax Savings

Posted: March 29, 2013, 6:45 p.m. EST


By Mark Battersby

The so-called “Fiscal Cliff” tax package, the American Taxpayer Relief Act, renewed more than 50 temporary tax breaks through the end of 2013, saving individuals and businesses an estimated $76 billion. For the owners and operators of many small- and medium-sized pet businesses, an important tax break—the Section 179 first-year write-off for new business equipment and property purchases—has been extended.

The new law keeps in place Section 179's 2010/2011 levels of a maximum annual write-off amount of $500,000, with a $2 million cap on purchases beyond which the allowance is phased out. Best of all, the new amounts apply to both 2012 and 2013.

While property qualifying for the Section 179 write-off may be used or new, so-called “bonus” depreciation requires the business be the first to use the purchased property. The new law allows an immediate write-off of 50 percent of the cost of new equipment and business property purchased before Jan. 1, 2014.

The Fiscal Cliff tax package extended tax breaks for businesses.
In addition, the Work Opportunity Tax Credit was extended one year to encourage the hiring of new employees from targeted groups with the government, in the form of a tax credit, picking up as much as $6,000 of the new hire's first-year wages.

Those now operating their business as an S corporation will be happy to learn that the tax on gains built-up while it was a regular C corporation has been relaxed. The new law extends the provision that limits the recognition period to five years, but only for built-in gains recognized in 2012 and 2013. A pet business that elected S corporation status beginning Jan. 1, 2007, may sell appreciated assets it held on that date without being subject to a hefty tax bill.

Ironically, the dreaded Alternative Minimum Tax (AMT) was created to ensure that wealthy individuals, not middle-income households, would pay some kind of income tax. The new law increases the 2012 amounts before taxpayers get hit by the AMT to $50,600 for unmarried individuals and $78,750 for jointly-filing couples. For 2013, the AMT exemption amounts are predicted to be $51,900 for single individuals and $80,750 for married couples filing jointly.

Although it is not the grand bargain envisioned by lawmakers, many popular but temporary tax breaks for individuals and businesses are included in the American Taxpayer Relief Act. The new law is, however, only a stop-gap measure, and Congress still must address spending cuts and might even tackle tax reform.

Everyone within the pet industry should seek from their accountants and/or tax professionals an analysis of this new tax law to reap the potential savings offered by these newly revised, extended, expanded and, in many cases, retroactive, business credits, deductions and tax write-offs.

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