It is that familiar time again in Washington. It is time for Congress, yet again, to consider “tax extender” legislation that would extend and expand certain expired income tax benefits for another year or two. Included within the list of potential tax extenders that expired at the end of 2013 are items that could have a significant impact on restaurant owners, such as 50% bonus depreciation, increased Section 179 expensing, 15-year depreciation on qualified restaurant improvements, and the Work Opportunity Tax Credit (WOTC), among others.
Several of these provisions seem to be routinely renewed each time they expire, which begs the question of why they are not extended for longer periods or even made permanent, which could promote economic certainty for business owners and simplify the tax code. The reason is simple: politics. The tax extenders are often only renewed one or two years at a time to support a lower overall tax cost and to minimize the impact on the deficit.
The current tax extenders package under review is appropriately referred to as the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, and has received some bipartisan support. The EXPIRE Act, which has over 60 proposed tax law changes, has an estimated tax cost of approximately $85 billion over 10 years. Some of the extenders would benefit a wide-range of individuals and businesses, such as 50% bonus depreciation (expected cost of $2.85 billion over 10 years), increased Section 179 expensing (expected cost of $3.2 billion over 10 years), 15-year depreciation on qualified restaurant improvements (expected cost of $4.8 billion over 10 years), and WOTC (expected cost of $3.16 billion over 10 years), while other extenders would apply only to select businesses, such as the wind production tax credit (expected cost of $13.35 billion over 10 years).
The significance of several of these expiring tax laws, especially those related to accelerated tax depreciation, should not be overlooked. In recent years, these laws have helped stimulate economic growth across many business sectors. One provision in particular, the 15-year depreciation on qualified restaurant improvements, has specifically incentivized restaurant owners, allowing them to grow and expand their businesses.
The benefit of 15-year cost recovery for qualified restaurant improvements is two-fold: not only are restaurant owners able to shorten the depreciable life from 39 years to 15 years, allowing them to more quickly recoup their investment, but also up to $250,000 of such property becomes eligible for Section 179 expensing. To quantify the potential benefit, an expanding restaurant that invests $250,000 in qualified restaurant improvements could potentially save approximately $97,000 in 2014, translating to a benefit of approximately 40%.
Unfortunately, the EXPIRE Act, with its many provisions, is far from making its way through the House and the Senate. Considering the pace in which Congress moves (and that 2014 is an election year), passing a complete tax extenders package may not occur until after the November elections during the lame duck Congress. Hopefully the terms of the Congress members won’t “expire” before legislation is passed.