Congress's passage of the American Taxpayer Relief Act has not only averted the so-called "fiscal cliff," but also tax increases for many individuals and small business owners, like restaurateurs, the National Restaurant Association said.
The fiscal bill, which President Obama signed into law Jan. 2, included a one-year extension of the 15-year tax depreciation schedule for restaurant buildings, the Work Opportunity Tax Credit and the enhanced deduction for charitable food donation. The three provisions were renewed retroactive to Jan. 1, 2012, through 2013. The law also authorizes another year of the 50-percent bonus depreciation for certain equipment.
The NRA successfully led a coalition of retail and other interests pushing for inclusion of the 15- rather than 39-year depreciation schedule for restaurant improvements and new construction. The WOTC provides businesses with a credit of up to $2,400 per year for employees hired from certain hard-to-employ groups. The charitable-deduction provision ensures that smaller companies qualify for the same tax deduction as larger companies when they donate food.
"Renewing these through 2013 will, for the short term, ensure some certainty for restaurateurs," said Liz Garner, the NRA's director of commerce and entrepreneurship. "It also will give Congress time to focus on more comprehensive tax reform in 2013."
She added that "failure to renew the extenders would have meant less operating capital for restaurateurs to reinvest back into their businesses." Garner further noted that the deal would "keep many, but unfortunately not all, restaurateurs from facing higher tax burdens in a recovering economy."
In addition to renewing the business extenders, the new legislation also permanently maintains reduced 2001 and 2003 tax rates for individuals earning up to $400,000 and couples earning $450,000 annually. Income above those figures will be taxed at rates rising up to 39.6 percent.
Other provisions in the legislation include:
• Estate and gift tax rules will remain close to the levels that existed during the past year with minor modifications, and will be permanent going forward. Instead of reverting to a 55-percent rate for estates of more than $1 million, as it was before 2001, the estate tax would rise to 40 percent from its 2012 level of 35 percent. The first $5 million in in individuals' assets, and $10 million per couple, will continue to be exempted.
• The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $400,000/$450,000 threshold. It will remain at 15 percent for everyone else.
• The alternative minimum tax, or AMT, would be "patched" permanently as part of the deal. Because it was not originally indexed for inflation, the AMT had to be "patched" annually to prevent an increasingly large number of middle-class taxpayers from getting caught in the AMT tax system. This deal indexes AMT levels permanently.
• Some tax breaks will expire and not be renewed. In particular, the 2-percent payroll tax "holiday" for individuals, enacted as part of the several stimulus steps to help battle the recession, is not being renewed or extended. Social Security payroll tax rates will revert to 6.2 percent from 4.2 percent on the first $113,700 in earnings.
• The farm bill was extended for a year, through Sept. 30, 2013, giving Congress nine months to forge a compromise on new commodity programs. The extension averts a steep increase in milk prices that would have occurred if the current law had not been extended or reformed, a result of underlying 1949 dairy price support policies.
• Certain lower-income and family tax credits will be extended for five years. They include the Earned Income Tax Credit, a tax break for workers with low to moderate wages. Unemployment insurance for long-term unemployed also is extended for one year.
• The health care law's new 3.8 percent tax on investment income for those who earn more than $250,000 a year will, for now, still go into effect in 2013. However, a significant number of Democratic senators say they agree with most Republicans that the tax increase should be eliminated.
Reposted from NRA News blog