Four Ways The Lame Duck Congress Could Make Your Christmas Very Merry
(This post originally appeared on Inc.)
Seasons greetings. Happy holidays. Merry Christmas. It’s a great time of year. And for business owners, this year’s holiday season may be even better than most. That’s because, as I write this, the lame duck Congress–yes, those guys who were (in many cases) voted out of office and will be replaced by a new, Republican-led majority in both houses come January–is ready to move forward with legislation that will impact you and your business. In a good way. A very good way. In fact, four good ways. Are you ready for a joyous Noel?
A government shutdown will be avoided. The government officially runs out of money on December 11th. Congress is scheduled to go on their holiday break on December 12th. Talk about incentive to get something done, right? Although there has been Republican threats to hold back funding in response to the President’s recent actions on immigration reform, there seems to be leadership support from both the Senate and the House (and the votes) to pass a bill that will keep the government funded through most of 2015. This is good news for any small business that does business with or relies on services from the government. It is good for travelers and tourists and construction workers and pizza shops that make their money from government employees. It also avoids sending signals of uncertainty and doubt through the financial markets or giving even more cause for credit services like Moody’s or Standard & Poor’s to potentially reduce the U.S.’s ratings. No shutdown means business as usual. And, yes an $18 trillion national debt and half a trillion in deficits this year is not good news for your business in the long term (hint: sequestration and higher taxes in the future) but let’s not think about this right now, OK? Pass the eggnog.
Accelerated and bonus depreciation will be restored. Last year, Congress let provisions for accelerated and bonus depreciation to expire and this has upset many in the SMB community. Depending on the size of your company you were, in the past, able to immediately deduct up to $500k of qualified assets purchased (i.e. capital equipment, computers, etc.) and even take bonus depreciation on other assets too. Many of my clients relied heavily on these incentives to not only invest in new equipment but to sell their own products to their qualified to customers who were encouraged to also take advantage of this tax benefit. It looks promising that Congress will resuscitate these provisions, at least for 2014. That’s a big bonus for those of you who have been building your balance sheets this past year. Unfortunately, the extension is likely to not be permanent so the battle will resume in 2015. But let’s not think about this right now, OK? More eggnog please.
Congress will likely restore the research and experimentation tax credit.This was another popular credit used for years by companies in the pharmaceutical, medical and technology fields and it also expired at the end of last year. But now it will likely make a return appearance for 2014–again. The provision allows for companies to take certain qualified R&D expenses as a credit against future (or past) taxes owed. It’s particularly valuable for startups and other young companies because the credit can be carried forward against future earnings, providing even more of a payback for the research done in prior years. Like the accelerated depreciation and bonus provisions, the research and experimentation tax credit, if allowed, will likely only be temporary–for 2014. Future years will continue to be up for negotiation. But, hey, let’s not ruin the holiday party, OK?
There will be more help for individuals. The President says he’ll veto these tax extensions if there isn’t more done for lower income people. Even though the legislation restores many tax incentives for individuals (my personal favorite is the deduction for state and local taxes) he also wants to see the bill include the restoration of the earned income credit and child tax credit. I get it–he’s a man of the people, a populist kind of guy, a lover of humanity. And so am I. And so are most of the business owners I know. It’s likely that these deductions and credits will be restored. And although a cynic would say that this is just a popularity grab, a realist could also make the argument that the more money you put in the hands of individuals through tax credits and deductions, the more money they have available to spend or save. And that money ultimately flows back into the economy and into the accounts of those businesses that sell products to them. Because in the end, everything is all about the consumer. Everything. So I’ll make the argument that these individual incentives are also good for your business and mine too. Let’s all join the party.
But…before we all get too merry, let’s not forget that restoring these tax goodies, even for just one year, takes us on the road back to where we were before: a government that’s still spending way more than it’s taking in. It does nothing to address our ongoing deficit and national debt issues. It’s again kicking the can down the road, hoping that, by some miracle, our grandchildren won’t be saddled with the debts that we continue to pile up. Maybe Congress is expecting a Christmas Miracle. Or that Will Ferrel will fix Santa’s sleigh so that he can dump a few trillion down the chimney on Capitol Hill. But no, Virginia (and DC), there really isn’t a Santa Claus. Which is why even though I’m happy about these tax changes for 2014, I’ll still be ditching the eggnog and moving straight to Jack Daniels come New Year’s Eve.