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Also see: CPA Client Letter: 2015 Tax Extenders (PATH) for Individual Taxpayers.
             An In-Depth Article: Congress Permanently Extends Numerous Tax Provisions (PATH).

        

 

CPA Client Letter: 2015 Tax Extenders (PATH) for Business Taxpayers.

(Parker Tax Publishing January 11, 2016)

Dear [client name],

As a year-end holiday gift, Congress gave taxpayers the Protecting Americans from Tax Hikes Act of 2015 (PATH), which was passed by Congress and signed by the President on December 18. As part of a broad budget deal, PATH permanently extends many tax provisions that previously had been up for renewal for one or two years at a time and temporarily extends dozens of others for periods ranging from two to five years.

The following is a recap of the new tax law’s keys provisions and the tax savings opportunities they create.

Increased Section 179 Expensing Made Permanent

One of the biggest wins for businesses is the permanent extension of the small business Code Sec. 179 expensing limitation and phase-out amounts in effect from 2010 to 2014 of $500,000 and $2 million, respectively. Both the $500,000 and $2 million limits are indexed for inflation beginning in 2016. For 2015, the limitation and phase-out amounts were slated to be $25,000 and $200,000, respectively.

The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended.

PATH modifies the expensing limitation by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

Bonus Depreciation Extended Through 2019

As you know, businesses can recover the cost of capital expenditures over time through depreciation. In 2014, you were entitled to a 50 percent bonus depreciation deduction for assets placed in service that year. PATH extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016, and 2017, and is phased down to 40 percent in 2018, and 30 percent in 2019.

PATH also allows you to elect to accelerate the use of alternative minimum tax (AMT) credits in lieu of taking the bonus depreciation.

Research Tax Credit Made Permanent

Another big win for businesses is the permanent extension of the research and development (R&D) tax credit under PATH.

Additionally, beginning in 2016, a qualified small businesses ($50 million or less in gross receipts) may claim the R&D credit against AMT liability, and the credit can be utilized by certain small businesses ($5 million or less in gross receipts and no gross receipts for any tax year preceding the five-tax-year period ending with such tax year) against the employer’s payroll tax (i.e., FICA) liability.

And, it is worth noting that two taxpayer-favorable court cases rejected IRS attempts to rein in taxpayers’ ability to take full advantage of this credit. If you’ve taken research tax credits in the past couple of years, it may be worthwhile to review the calculation of those credits in light of these cases to see if additional expenses can be claimed based on the court holdings.

Permanent Extension of Mass Transit Benefits

PATH has permanently extended, retroactive for 2015, the combined monthly exclusion from income for employer-provided transit and vanpool benefits. Thus, the exclusion for such benefits is the same as the exclusion for employer-provided parking benefits. While such benefits are not includible in the employee’s income on Form W-2, they are deductible by employers as fringe benefits.

Work Opportunity Tax Credit

PATH extends through 2019 the work opportunity tax credit. The provision also modifies the credit beginning in 2016 to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40 percent of the first $6,000 of wages.

15-Year Straight-Line Cost Recovery for Qualified Property

PATH permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.

Special Expensing Rules for Certain Film and Television Productions

PATH extends through 2016 the special expensing provision for qualified film, television, and live theater productions. In general, only the first $15 million of costs may be expensed.

Wage Credit for Employees on Activity Military Duty

PATH permanently extends the 20 percent employer wage credit for employees called to active military duty. Beginning in 2016, the provision modifies the credit to apply to employers of any size, rather than employers with 50 or fewer employees, as under current law.

Exclusion of 100 Percent of Gain on Certain Small Business Stock.

PATH permanently extends the temporary exclusion of 100 percent of the gain on certain small business stock for non-corporate taxpayers to stock acquired and held for more than five years. This provision also permanently extends the rule that eliminates such gain as an AMT preference item.

New Markets Tax Credit

PATH authorizes the allocation of $3.5 billion of new markets tax credits for each year from 2015 through 2019.

Look-Thru Treatment of Payments between Related Controlled Foreign Corporations

PATH extends through 2019 the look-through treatment for payments of dividends, interest, rents, and royalties between related controlled foreign corporations.

Tax-Free Distributions from Individual Retirement Accounts for Charitable Purposes

PATH permanently extends the ability of individuals at least 70 1/2 years of age to exclude from gross income qualified charitable distributions from individual retirement accounts (IRAs). This exclusion may not exceed $100,000 per taxpayer in any tax year.

Basis Adjustment to Stock of S Corporations Making Charitable Contributions of Property

PATH permanently extends the rule providing that a shareholder's basis in the stock of an S corporation is reduced by the shareholder's pro rata share of the adjusted basis of property contributed by the S corporation for charitable purposes.

Contributions of Capital Gain Real Property Made for Conservation Purposes

PATH permanently extends the charitable deduction for contributions of real property for conservation purposes. It also permanently extends the enhanced deduction for certain individual and corporate farmers and ranchers.

Miscellaneous Business Tax Provisions Extended Through 2016

PATH also extends through 2016 the following business tax breaks:

(1) Classification of certain race horses as 3-year property.

(2) 7-year recovery period for motorsports entertainment complexes.

(3) Accelerated depreciation for business property on an Indian reservation.

(4) Indian employment tax credit.

(5) Railroad track maintenance credit.

(6) Mine rescue team training credit.

(7) Qualified zone academy bonds.

(8) Election to expense mine safety equipment.

(9) Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.

(10) Empowerment zone tax incentives.

(11) Temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.

(12) American Samoa economic development credit.

(13) Deduction for energy efficient commercial buildings.

(14) Excise tax credits relating to certain fuels.

(15) Credit for new qualified fuel cell motor vehicles.

As you can see, the provisions in the Protecting Americans from Tax Hikes Act of 2015 are quite extensive. Please call me at your earliest convenience so we can discuss how to best leverage these provisions to the advantage of your business.

Sincerely,

[Your Name, Your Firm]

- END -


Also see: CPA Client Letter: 2015 Tax Extenders (PATH) for Individual Taxpayers.

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