Fiscal cliff averted, small business scores wins in cliff package

From SAF: On Jan.1, the House of Representatives voted on a Senate-passed measure to prevent significant tax hikes for most Americans and deflect spending reductions in avoiding the so-called fiscal cliff. President Obama signed the bill last week.

Though the last minute deal struck by the administration and Senate Republicans will delay some immediate economic consequences, many of the questions regarding federal spending and the debt ceiling were left unaddressed. The inability of Congress to find bipartisan agreement on longer-term revenue and spending issues could indicate that the start of the 113th session of Congress may strongly resemble the end of the 112th.

However, several notable provisions of the fiscal cliff deal are of interest to floral industry businesses. First, the good news:
•    Estate Tax: Long an SAF priority, Congress has finally provided some permanency as it relates to estate tax law. Virtually everything for which SAF has advocated, including a $5 million exemption level (indexed for inflation), spousal portability of the exemption and other provisions has been made permanent. The one notable change is an increase in the top rate from 35 percent to 40 percent. Though changes could be made to estate tax law in the context of comprehensive tax reform, this permanent solution will finally allow floral industry businesses to plan future business transfer with some certainty.
•    Direct Expensing: Section 179 of the Internal Revenue Code allows a business to write off a small amount of annual investment in capital assets in lieu of depreciating the investment over a number of years. Congress temporarily extended enhanced direct expensing for the next two years (2012 and 2013) by increasing the amount that could be written off to $500,000 and a $2,000,000 cap. This is a temporary provision that expires in 2014.
•    Depreciation Bonus: The 50 percent depreciation bonus that was set to expire was extended for another year through 2013.
•    Income Tax Rates: As many industry businesses are organized as S-Corporations that pay federal taxes at individual rates, it is noteworthy that a slight adjustment was made to taxable income rates at the federal level. Though rates established in 2001 were largely retained, a new top rate of 39.6 percent was established for individuals making $400,000 and households making $450,000 annually.
•    Alternative Minimum Tax: The AMT was conceived in the 1960s as a way to ensure that the wealthy paid at least some federal taxes. However, the income levels established by the AMT were locked in statute and not indexed for inflation. The cliff package contained a permanent fix to the AMT, setting the levels at $50,600 for individuals and $78,750 for households while indexing those levels for inflation.

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