Will Prize Tax Breaks End December 31?
While the budget agreement reached this week in Washington would avert another government shutdown in January there was little hope that anything will be done to renew the 55 federal tax credits set to expire at year-end.
The expiration of the tax breaks is no surprise to the business community, which has become accustomed to Congress extending them retroactively — most recently in the “fiscal-cliff” deal.
Renewal of the research and development credit continues to be at the top of the wish list for many business groups.
The Wall Street Journal believes that holding off on extenders would force business groups to make their case for prized preferences within the tax reform debate, after some of them balked at the proposed trade-offs for lowering tax rates.
Last month Sen. Baucus who chairs the Senate Finance Committee released a discussion draft which proposed reforms to the cost recovery and tax accounting rules which could become part of the promised tax reform efforts in 2014.
Some significant proposals in the staff discussion draft include the following.
Depreciation of Tangible Assets:
- Replace the current rules with a system that better approximates economic depreciation based on estimates from the Congressional Budget Office.
- Reduce the number of major depreciation rates from more than 40 to 5.
- Eliminate the need for businesses to calculate depreciation separately for each of their assets, other than real property.
Amortization of Intangible Assets:
- Require businesses to deduct the cost of R&D, natural resource extraction, and 50% of advertising expenses over 5 years.
Tax Accounting:
- Repeal LIFO accounting and the like-kind exchange rules.
Simplify & Reduce Tax Burdens For Small Businesses:
- Permanently increase Section 179 expensing to $1 million and expand the definition of qualifying expenses.
- Allow all companies with gross receipts under $10 million to use cash accounting and expense inventory costs.