Small Business Tax Resources
Since more than 80 percent of franchise businesses file their business income on their personal income tax return, reform of both individual and corporate rates is needed to ensure that franchise owners and other businesses organized as passthrough’s are not disadvantaged by an approach that only reforms corporate tax rates.
In addition, the following temporary provisions in the tax code have already expired or are set to expire at the end of
2012. They provide an important boost to small businesses struggling in the currently challenging economic climate, and need to be extended or renewed to help small businesses create jobs:
• 15-year Accelerated Depreciation for Leasehold Improvements – Congress expanded property subject to the 15-year depreciation schedule established in 1996 to include leasehold improvements, restaurant improvements and new construction and retail improvements.
Renewed as part of the U.S. Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, it is an important driver of economic activity in the franchising industry, fueling investment and job growth at a time when the recovery is still attempting to take hold. The 15-year recovery period reduces the cost of capital expenditures and increases cash flow. This provides needed capital for American businesses – which, in turn, translates into American jobs. The 15-year depreciation schedule is temporary and must be extended annually. The provision expired at the end of 2011 but can be renewed to have retroactive effect.
• 100% Bonus Depreciation – At various times, additional depreciation deductions have been authorized in order to encourage investment. The U.S. Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 increased bonus depreciation to 100 percent for qualified business property acquired after September 8, 2010 and before January 1, 2012. Like the 15-year depreciation, this provision is temporary and must be renewed for the bonus depreciation to remain at its current level.
• Work Opportunity Tax Credit – The Work Opportunity Tax Credit (WOTC) is a federal tax credit incentive that Congress provides to private-sector businesses for hiring individuals from nine target groups who have consistently faced significant barriers to employment. Participating employers are compensated by being able to reduce their federal income tax liability. Target groups include:
• Long-term TANF (TemporaryAssistance to Needy Families)
• Summer youth employees
• Qualified veterans
• Vocational rehabilitation referrals
• Estate Tax – The Estate Tax, sometimes referred to as the ‘death tax,’ is a tax imposed on the transfer of taxable estate of a deceased person. The federal government exempts a certain amount as exempt from the tax, and the exemption amount and top tax rates fluctuate. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the federal estate tax and set the exemption at $5.12 million per individual for 2012 with a top rate of 35%. However, under current law, the exemption will drop to $1 million and the top rate will go up to 55% for 2013. Legislative action is needed to maintain the current exemption and top rate.
• Bush-Era Tax Cuts – IFA also supports a complete and permanent extension of the Bush-era tax cuts. Since more than 80 percent of franchise businesses file their business income on their personal income tax return, they could be subject to a substantial tax increase under a plan that only extends the tax cuts for those individuals below a certain income threshold.
Piecemeal Approach to Tax Reform Will Not Create Jobs
Small Business Tax Cut Act Key Vote
IFA Survey on Tax Reform Proposals
IFA Letter to Super Committee to Tackle Tax Reform for Small Franchise Businesses
IFA Joins Small Business Groups on Comprehensive Tax Reform