[IMGCAP(1)]In July my column for this space asked whether it was too early to start thinking about tax extenders. Now, the question might better be phrased whether it is too late.
Back then, the wisdom was that extenders would eventually pass, but nothing is certain.
As far as advising business clients on the purchase of new equipment, Kathleen King, managing director of Alvarez & Marshall Taxand’s Washington office, said, “You have to look at the business needs first. If they need equipment, then they should go ahead and buy it. Some companies are getting used to these extenders, and by and large they are counting on them to pass.”
Whatever is passed will be “a fairly vanilla extension,” she predicted. “When it gets to crunch time, they’re not going to get any new things into the legislation. The pressure will be to extend what’s already on the books.”
However, businesses need to be able to plan and that takes time, according to Grafton “Cap” Wiley, managing director of the CBIZ Tofias New England office.
“If you purchase a large piece of equipment, that’s a major decision,” he said. “I have people postponing their decisions because of questions as to whether the enhanced Section 179 deduction will still be there. And usually, an R&D project [the R&D Credit is one of the expired provisions up for extension] is a multi-year endeavor.”
“I would be surprised if an extenders bill doesn’t pass this year,” said Moss Adams partner Tom Sanger. “My guess is December 18. They go on holiday after that. The House pushed through a bill with the R&D credit and it’s still there. Earlier this week, Chairman Brady came out with a backup extenders bill. Both parties want to make the R&D credit permanent, but any time you make something permanent you need to account for the cost of it over a ten-year period of time. The cost is estimated at $11 billion a year or over $100 billion if they make it permanent. The effort to make it permanent is bipartisan and noncontroversial, but it’s hard to do because of the cost.”
The bills currently in play all make the R&D credit more lucrative by adjusting the alternative simplified calculation from 14 percent to 20 percent and allow the credits to offset Alternative Minimum Tax for small businesses, Sanger noted. “In some cases the alternative has been the better answer, but in some it has not,” he said.
If the extenders are not passed until January, those companies that have a year end of December 31 won’t be able to claim the R&D credit benefit on their financial statements, Sanger said. “When the credit was extended in January a couple of years ago, it caused a lot of chaos, so I would be shocked if it’s not extended by December 18.”
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