For entrepreneurs, the biggest change in the tax law might be the new rules for fixed assets. Congress has not re-enacted the rules allowing "100% bonus depreciation" for new fixed assets. Instead, "50% bonus depreciation" applies. For qualifying property, taxpayers will be allowed to deduct half of the cost of fixed assets placed in service in 2012; the remaining half of the cost will be depreciated over a period of years under the "MACRS" rules. For example, a taxpayer buying a $10,000 computer system would get to deduct $6,000 this year: $5,000 "bonus" depreciation and 20% of the remaining $5,000 cost ($1,000) under the usual rules for five-year property.
The "Section 179" deduction limitation for fixed assets has also changed this year. Section 179 allows businesses to deduct the cost of fixed assets -- new or used -- that would otherwise have to be capitalized and depreciated over a period of years. For 2011, up to $500,000 in assets qualified for Section 179 treatment. That goes down to $139,000 in 2012.
A few other tax numbers for 2012:
- The business mileage standard rate is 55.5 cents, unchanged from 2011.
- The maximum compensation or self-employment income subject to FICA tax is $110,100; the maximum eligible for the reduced rate through February is $18,350; amounts over that paid as compensation will be recovered through a special 2% income tax, unless the break is extended beyond February.
- The maximum 401(k) deferral for 2012 is $17,000 (up from $16,500), plus the $5,500 "catch up" for taxpayers 50 and older.
Have a great 2012!
- Joe Kristan