For small businesses, a road without a map

NEW YORK — Last year, owners of small businesses had to cope with higher tax rates. This year, they will wrestle with greater uncertainty about the fate of some deductions they have come to rely on.

Congress has not renewed the so-called extenders, about four dozen provisions in the Internal Revenue Code that permit write-offs of various types of business expenditures and expire periodically, most recently at the end of 2013.

Most or all of the extenders could be reinstated although no vote has been scheduled. Unless and until they are, tax specialists warn, it will be hard for business owners to make informed decisions about spending for capital equipment, research and development, and even new employees.


“Every company in the United States right now,” said Kate Barton, vice chairwoman for tax services at the Americas tax practice of Ernst & Young, “has to plan for 2014 without the research credit, the Work Opportunity Tax Credit and a whole bunch of other provisions. It’s a real bummer for small companies.”

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The first credit is for part of expenditures on qualified research and development.

The second is for a part of the wages of new employees drawn from certain segments of society, including military veterans, welfare recipients, and ex-felons.

Also left unextended is the $500,000 ceiling on the Section 179 expense election. This provision has allowed businesses to write off capital expenditures in the year they were incurred, up to that amount, instead of depreciating them over several years. Without an extension, the ceiling falls to $25,000.

Tax returns for 2013 aren’t affected by the expirations of these extenders. But returns for future years will be, unless Congress acts. Will the provisions be renewed?


“That’s the zillion-dollar question,” Barton said. “They have in the past, but there’s a lot of politics involved. There could be piecemeal tax reform that affects the extenders.”

Chris Whitcomb, tax counsel for the National Federation of Independent Business, acknowledged that business-friendly provisions are often reinstated retroactively, but he emphasized that this isn’t the same as being able to count on them all along.

“The frustration we hear from our members is over the unpredictability of measures that might get extended,” Whitcomb said. “The more predictability and permanence there is in the tax code, the better. Tax provisions that encourage investing more capital would be ideally done permanently.”