2011 Sunsetting Business Tax Provisions – Part 2: Tax Deductions

Published:

by Melissa Merrick and Marie Jett, CPA | Team Members of the Tax Services Group

In the October 13 issue of our enewsletter, we reviewed with you the tax deductions that are scheduled to sunset in 2011. There are also several tax credits that are scheduled to end in 2011. A tax credit is a direct dollar for dollar reduction in the amount of tax that you owe. Specific tax credits that are scheduled to expire in 2011 include the research credit, the work opportunity tax credit, and the new energy efficient home credit.

The research credit available in 2011 is allowed for research fitting the following criteria:

  • Research taken on to find new technological information
  • Research used in creating an original or enhanced business component
  • The credit however is disallowed for research carried out following initial commercial production, research adapting a current product/process to a specific client, surveys, studies, research for internal use software, research done outside the US, research for social sciences/art/humanities, and research funded by an outside individual.

The calculation on the credit is a bit complex. It essentially equals the sum of: (1) 20% of the qualified research expense less the greater of 50% of the qualified research expenses or an amount based on a formula that takes account of the qualified research expenses and gross receipts in certain earlier tax years; (2) 20% of research payments to certain outside organizations; (3) and 20% of amounts paid or incurred to an energy research consortium for energy. This credit is scheduled to expire as of December 31, 2011. Therefore, if you can expedite expenses that would relate to this credit, this would be beneficial.

The work opportunity tax credit available in 2011 is allowed for eligible employees who fit the following criteria:

  • Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program
  • Qualified veterans
  • Qualified ex-felons
  • Designated community residents
  • Vocational rehabilitation referrals
  • Qualified summer youth employees
  • Qualified member of families in the Supplemental Nutritional Assistance Program (SNAP)
  • Qualified Supplemental Security Income recipients
  • Long-term family assistance recipients

The tax credit can be worth as much as $2,400 for each eligible employee (with the exceptions of increased credits of $4,800 for certain veterans and $9,000 for employees who are long-term family assistance recipients). This credit is not available for individuals who begin work after December 31, 2011. Therefore, if you are planning on making new hires that would fall into any of the eligible employee categories above, you should do so before December 31, 2011.

The new energy efficient home credit available in 2011 is for contractors that have sold or leased an energy efficient home to an individual as a residence. Such eligible contractors can claim a credit for $2,000 or $1,000 for each qualified new energy efficient home. Therefore, speeding up the sale of such residences would be in the best interest of eligible contractors given this credit won’t be available in 2012.

Please note that the following items are by no means all the tax credits that will be expiring in 2011, but a list of items that we believe are most relevant to you. If you have any questions regarding, tax credits or other miscellaneous items that are to expire in 2011 and how you can take advantage of them in the current year, please contact Greenwalt CPAs Tax Services Group at 317-241-2999.