What most people don’t realize is that the Internal Revenue Code is designed to encourage certain activities that benefit the American public. The current Extenders Bill only deals with 2014, which is already past. ~ Tom Wheelwright, CPA and CEO ProVision
Temple, Arizona (PRWEB) December 11, 2014
To encourage small business growth in the U.S., Tom Wheelwright, CPA, CEO of ProVision, and Author of Tax-Free Wealth, emphasizes why tax incentives for business in the Extenders Bill should be permanent tax deductions versus retroactive. Dozens of tax breaks for individuals and businesses expired in January 2014, and this pattern of passing an Extenders Bill at the last minute so taxpayers can claim deductions on their returns makes financial planning a challenge.
“What most people don’t realize is that the Internal Revenue Code (the “tax law”) is designed to encourage certain activities that benefit the American public. The current Extenders Bill only deals with 2014, which is already past. So basically, it is a give-away to people who took specific investment actions they hoped would be recognized with tax savings – if, and when an extension of the tax benefits is passed by Congress.” ~ Tom Wheelwright, CPA and CEO ProVision
While many extenders are for individuals (such as education credits that encourage people to get advanced degrees and further their education), other provisions encourage businesses to take risk and invest in something that will benefit the overall economy. Three of the business tax benefits in the Extenders Bill that are particularly important to small and growing businesses include:
1. Equipment Deductions – This Section 179 provision allows small business owners to deduct equipment purchased in the year they purchased it, rather than normal requirement to take a small deduction every year for 5-15 years. The Bill allows small business to deduct up to $500,000 of equipment in a single year. This is a terrific incentive for businesses to reinvest their profits back into their business. Without this provision, a business that reinvested its profits would pay tax on money they didn’t have, as the profit would be taxed in the current year and the deduction wouldn’t happen for several years in the future.
2. Bonus Depreciation - This deduction is equal to 50% of all new equipment purchased during the year. It applies to all businesses, not just small businesses. Whereas the Section 179 deduction applies equally to new and used equipment, bonus depreciation only applies to new equipment. So it encourages the creation of new production equipment, and is intended to stimulate additional business infrastructure.
3. Research and Development Tax Credit - The third and perhaps most important of the business incentives in the Extenders Bill is the research and development tax credit. This credit, which has been an extender ever since it first came into existence (i.e., it was never a permanent provision), provides an incentive to businesses to do new research and develop new ideas.
While the Extenders Bill is only retroactive, and doesn’t really provide an incentive for new activity, Wheelwright believes that its passing does give hope to business owners. It rewards those who took the risks in 2014, and provides a baseline for permanent tax reform.
Now that the Republicans control the House and the Senate, President Obama has taken up the tax reform cry. Obama is making taxes his top project on his domestic agenda for the next two years. Wheelwright predicts this tax focus will most likely result in a boxing match between the President and Republican House and Senate with the hope of some real tax reform over the next couple of years.
Looking ahead, Wheelwright underscores, “Hopefully, we will get some real tax reform over the next couple of years. It is not an easy battle; nor should it be. There will be winners and losers. Let’s hope that small business owners, who provide most of the jobs and economic activity in this country, come out winners. If they win, everyone wins.”
Tom Wheelwright, CPA and CEO of ProVision, is a leading tax and wealth expert, speaker, published author of "Tax-Free Wealth" on partnerships and corporation tax strategies, and a Rich Dad Advisor/Speaker for Robert Kiyosaki, who wrote Rich Dad Poor Dad. Donald Trump selected Tom to contribute to his Wealth Builders Program, calling Tom "the best of the best." He is best known for making taxes “fun, easy and understandable,” and specializes in helping entrepreneurs and investors build wealth through practical and strategic ways that permanently reduce taxes. He is also the Founder of WealthStrategyU, and has been featured in Accounting Today, Deseret News National, and CEO Blog Nation, and as a guest on the Real Estate Guys Radio Show and Money Radio 1510 Business for Breakfast. http://taxfreewealthadvisor.com
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