Bonus Depreciation
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This document summarizes new bonus depreciation provisions for 2010-2011. Key points include: - Property like equipment and computers that is originally used and placed in service between 2008-2012 qualifies for 50% bonus depreciation, and between 2010-2011 qualifies for 100% bonus depreciation. - Self-constructed property also qualifies if physical work begins by a set date and 10% of costs are incurred/paid. - A small business health care credit of up to 35% of premiums paid is available for small employers offering qualifying health insurance plans to employees. The credit phases out for businesses with over 10 employees or average wages over $25,000.
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Bonus Depreciation
- 1. Bonus DepreciationNew Provisions for 2010/2011Presented by: Sarah Denton, [email protected]
- 2. Bonus Depreciation RequirementsProperty TypeOriginal UsePlaced in Service DateAcquisition Date
- 3. Property Type Property with MACRS life of 20 years or lessComputer softwareQualified leasehold improvementsWater utility property
- 4. Original UseOriginal use of property must begin with the taxpayer – NO USED PROPERTYOriginal use must begin after:12/31/2007 for 50% bonus9/8/2010 for 100% bonus
- 5. Placed In Service Dates:Property must be placed in service:between 1/1/08 and 12/31/12 to qualify for 50% bonusbetween 9/9/2010 and 12/31/2011 for 100% bonuswith some exceptions – written binding contract for purchase cannot be in effect before earliest date
- 6. Self-constructed PropertyEither “manufactured, constructed, or produced” by the taxpayer for their own use or,“manufactured, constructed or produced for the taxpayer by another person under a written binding contract”
- 7. Acquisition date for self-constructed property:Physical work of a significant nature beginsSafe HarborSignificant physical work beginsAccrual basis – when 10% of total cost of property is incurredCash basis – when 10% of total cost of property is paidthis doesn’t include cost of land or preliminary activities such as planning, designing or researching
- 8. Considerations:Other tax attributes may be affected by claiming bonus depreciationDPADForeign tax credits, state credits and general business creditsState Considerations:Many disallow bonus – Tennessee for exampleLoss of state NOLs
- 9. Small Business Health Care Credit
- 10. Overview:Available to small employers that provide health insurance coverage to employeesIncludes taxable employers and 501(c)(3) organizations2010 – maximum credit is: 35% of premiums paid for taxable employers25% of premiums paid for tax-exempt employers
- 11. Eligible Businesses:Fewer than 25 full-time equivalent employees (FTEs)Owners and partners generally don’t countEmployees must earn an average of less than $50,000 per FTEEmployer must maintain a “qualifying arrangement” for health insurance coverage
- 12. Qualifying Arrangement:Employer pays premiums for each employee enrolled in health care coverageAmount paid for employees must be a uniform percentage (not less than 50%)Includes:medical care – long term care, nursing home careHMOsDental or vision plans
- 13. Premiums Included:Lesser of:Actual premiums paid by employer or,Average premium calculated by the Department of Health and Human Services for the small group market in each state.TN - $4,611, $10,369GA - $4,612, $10,548
- 14. Credit:Gradual Phase Out:FTEs exceed 10Average Annual Wages exceed $25,000Transition Relief:Employers who pay 50% of premiums for single coverage will meet the uniformity requirement regardless of whether they pay the same percentage for each employee