Fiscal cliff legislation offers many changes to private companies and their owners

Private Company Services Tax Insight

President Barack Obama on January 2 signed into law the American Taxpayer Relief Act of 2012 (the Act). Much of the new law will affect privately held companies and their owners for 2012 and beyond.

The Act includes permanent extensions of certain 2001 and 2003 tax provisions for individuals with incomes below $400,000, and joint filers with incomes below $450,000. For individuals whose taxable income exceeds these thresholds, their top tax bracket will increase to 39.6% and their dividends and long-term capital gains will be taxed at 20%. The legislation also permanently extends the $5 million estate and gift tax exemption (indexed for inflation). In addition, the Act extends a 50% bonus depreciation provision for qualified property through the end of 2013.

The Act also provides permanent indexing of individual alternative minimum tax (AMT) exemption levels for 2012 and subsequent years. The Act includes retroactive extensions through 2013 of certain expired individual, business, and energy tax provisions. The renewed business tax provisions include the research credit (with modifications), controlled foreign corporation (CFC) look-through, 15-year straight-line cost recovery for qualified leasehold improvements, and certain other provisions that expired at the end of 2011.

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