Tax Insights 2016 Tax Planning for
Businesses
Recent tax changes offer substantial business benefits for 2016 and future years A VARIETY OF TAX PROVISIONS recently enacted by Congress provide substantial benefits and savings opportunities to businesses in 2016 and beyond. Those tax provisions include:
Permanent Enhanced Section 179 Expensing AS PART OF THE Protecting Americans from Tax Hikes Act of 2015 (PATH Act) that became law in December 2015, Congress permanently established a $500,000 level for first-year expensing under Internal Revenue Code (IRC) Section 179. The $500,000 level is retroactive for 2015 and can be applied to qualified purchases that range up to $2 million in value. The deduction is phased out for purchases exceeding $2 million. Qualifying purchases include equipment purchased for business use, tangible personal property used for business, any business vehicles with a gross vehicle weight exceeding 6,000 lbs., computers and off-the-shelf software. A qualifying item must be placed in service during the year in which the expense is claimed. Section 179 expensing levels will be adjusted annually for inflation.
Permanent Establishment of Research and Experimentation Tax Credit (R&D Credit) THE R&D TAX CREDIT WAS INTRODUCED as a temporary measure in 1981. While the credit was repeatedly extended by Congress, it did not become a permanent tax provision until passage of the PATH Act. The credit may be applied to a variety of activities that address uncertainty and relate to the development or improvement of a business component. Starting with the 2016 tax year, businesses with less than $50 million in gross receipts may use the credit to offset Alternative Minimum Tax (AMT) obligations. Businesses with less than $5 million in annual gross receipts and having gross receipts for no more than five years may also use the credit to offset payroll tax obligations.
Extension of Worker Opportunity Tax Credit (WOTC) Through 2019 THE WOTC WAS CREATED IN 1996 and continually modified and extended, with the PATH Act extending the credit through 2019. The WOTC is available to employers who hire from targeted groups, including veterans, persons with disabilities, various recipients of government aid, and individuals unemployed for at least 27 weeks in the one-year period preceding the hiring date. Tax credits range up to $9,600 for first-year wages paid to qualifying employees.
Tax Insights: 2016 Tax Planning for Businesses Permanent Extension of Differential Wage Payment Credit for Military Reservists BUSINESSES THAT PAY DIFFERENTIAL WAGES to U.S. military reservists can claim a 20 percent credit – up to $20,000 per employee – for the wages paid to employees while on active duty. The credit was introduced as a temporary measure in 2008 as part of the Heroes Earnings Assistance and Relief Tax Act (HEART Act), but was not extended beyond 2014. In addition to making the credit permanent, the PATH Act made its application retroactive to the 2015 tax year. For 2015, the credit applies to businesses with less than 50 employees. For 2016 and future years, the credit is available to all employers.
Permanent 15-Year Recovery Life for Some Items THE PATH ACT PERMANENTLY ESTABLISHED a 15-year straight-line recovery period for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. The 15-year recovery period was introduced as a temporary provision in the 2004 American Jobs Creation Act (AJCA). The provision was extended numerous times afterward, with its most recent extension scheduled to expire at the end of 2016.
Bonus Deprecation Extended – with Phase-Out – Through 2019 FIRST-YEAR BONUS DEPRECIATION PROVISIONS that had expired at the end of 2014 were retroactively extended by the PATH Act for 2015 through 2019. For the 2015 to 2017 tax years, businesses may immediately deduct 50 percent of the cost for items placed in service during one of those years. For 2018, that first-year bonus depreciation rate is scheduled to drop to 40 percent; for 2019, the rate drops to 30 percent.
Some ACA Taxes Suspended or Postponed WHEN IT BECAME LAW IN 2010, the Affordable Care Act (ACA) called for various taxes to take effect in future years, including a 2.3 percent excise tax on medical devices in 2013, and a 40 percent “Cadillac Tax” in 2018 on more costly employer-sponsored health care coverage. Under December 2015 legislation, the excise tax on medical devices was suspended for 2016 and 2017, while the Cadillac Tax will not be implemented until 2020.
CONTACT US Jeff Sanders, CPA Partner, Tax and Strategic Business Services jeff.sanders@weaver.com Emily Adams, CPA Senior Manager, Tax and Strategic Business Services emily.adams@weaver.com
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Plan Now to Benefit from Tax Law Changes RECENTLY-ENACTED TAX LEGISLATION offers substantial potential tax savings and benefits for 2016 and future years. The varieties of recently-enacted provisions enable businesses to attain immediate benefits while also integrating tax considerations with long-term growth strategies. Now is the time to become more familiar with the details of relevant tax provisions and their potential short and long-term benefits.
Disclaimer: This content is general in nature and is not intended to serve as accounting, legal or other professional services advice. Weaver assumes no responsibility for the reader’s reliance on this information. Before implementing any of the ideas contained in this publication, readers should consult with a professional advisor to determine whether the ideas apply to their unique circumstances. © Copyright 2016, Weaver and Tidwell, L.L.P.
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