Implications for Corporations of the Taxpayer Relief Act
Accumulated Earnings Tax. The 15-percent accumulated earnings tax rate is increased to 20 percent, for tax years beginning after December 31, 2012. The rate is now permanent.
Personal holding company tax rate. The 15-percent rate on personal holding companies is increased to 20 percent, for tax years beginning after December 31, 2012. The rate is now permanent.
Repeal of collapsible corporation rules. The collapsible corporation rules of Code Sec. 341 are permanently repealed in tax years beginning after December 31, 2012. Thus, for post-2012 tax years, a shareholder of what would have been defined as a collapsible corporation will not be required to report as ordinary income, any gain realized on sales or exchanges of their stock or on certain distributions that would normally result in capital gain treatment.
The majority of U.S. businesses are pass-through entities, such as partnerships and S corporations. This means that profits are passed through to their individual owners and therefore are taxed at individual income tax rates. A “C” corporation, with its current corporate level tax rate of 35 percent (which may drop if recent corporate tax reform proposals are adopted), may become more attractive with rates rising to 39.6 percent for some individuals.
More Business Tax Extenders
A number of other business tax extenders expired after 2011 and they are extended through 2013 under the American Taxpayer Relief Act. They include, among others:
- New Markets Tax Credit
- Employer wage credit for activated military reservists
- Subpart F exceptions for active financing income
- Look through rule for related controlled foreign corporation payments
- 100 percent exclusion for gain on sale of qualified small business stock
- Reduced recognition period for S corporation built-in gains tax
- Enhanced deduction for charitable contributions of food inventory
- Tax incentives for empowerment zones
- Treatment of dividends of regulated investment companies (RICs)
- Treatment of RICs as qualified investment entities
- S corporations making charitable donations of property
Not extended.. Certain business provisions not extended by the American Taxpayer Relief Act include:
- Enhanced deduction for corporate charitable contributions of book inventory;
- Enhanced deduction for corporate charitable contributions of computers;
- Tax incentives for the District of Columbia; and
- Expensing of brownfields remediation costs
Summary of Implications – American Taxpayer Relief Act
The American Taxpayer Relief Act has a significant impact on all taxpayers. If you have any questions about the new law or how it affects you, please call our office for an appointment. We will be happy to assist you.
- Return to the main page, 2012 Taxpayer Relief Act – SF Bay Area Tax Perspective
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