President Obama signed into law a series of tax proposals on December 17th 2010. Many of the new tax changes are only temporary, though the breaks are welcome for an industry which is leading the rest of the economy in shrugging of the harsh recessionary pressures of the last 2 years.
The new law, which goes by the great sounding name of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (HR4853), provides for tax breaks for both business and individual taxpayers. In addition, there are also extensions for energy allowances and other tax breaks, including substantial alterations to the federal estate tax regime.
The business aspects for the tax changes are most relevant and important for the trucking industry. Perhaps the most important change is the full expensing allowance for any business which invests in operating equipment which is in service between September 8, 2010 and December 31, 2011. The full expensing allowance applies to all equipment investments which were eligible for the 50% bonus depreciation rate (under the previous legislation and which will revert back into force upon the expiry of this new, 100% allowance law). The temporary upper limit of $125,000 p.a. has now been made permanent, and will provide a boost to the new and used semi trailer and tractor markets.
In addition, the temporary measure for tax credits for research and development have also been extended for a further two tax years (2010 and 2011).
Ethanol and biodiesel, amongst other energy sources, are provided with a boost by the introduction of energy credits. Also, there is 50 cents per gallon alternative fuels tax credit in force until December 31, 2011 which will largely benefit propane fueled forklift truck operators. The IRS will need to be consulted for guidance on who and how qualification for the alternative fuels tax credit will be calculated and claimed.
Federal estate tax provision expired in 2009 and much higher rates would have automatically reapplied at the end of 2011. Congress has acted to bring in a new law which introduces a $5 million estate allowance and an effective rate of 3% on the excess. Most truckers and owner-operators will therefore be unaffected by the federal estate tax.
Individual taxpayers will find the tax brackets in force since 2001 and 2003 (keeping the tax cuts which otherwise would have lapsed), and these also apply to capital gains and dividend income. There is some small tinkering with the alternative minimum tax and employee contributions to social security have been reduced for 2011 from 6.2% to 4.2%. Self-employment tax has also been reduced from 12.4% to 10.4%.