Posted by Emily Schmidt
Are you in the post-holiday gloom and seeking excitement for another year of business? You may receive inspiration from the money-saving possibilities afforded by the Protecting Americans from Tax Hikes (PATH) Act of 2015. This act, passed on December 18, 2015, contains numerous extenders that may provide businesses a more equitable tax liability. Some of the most prominent extenders include:
Finally! Your small business has the potential to squeeze more benefit out of research expenditures. The research and development tax credit and the alternative simplified credit are now permanently extended and made retroactive to January 1, 2015. The simplified credit will increase from 14 to 20%. The standard credit will include 20% of qualified research expenses for the year in excess of a base amount, 20% of basic research payments made to a university, and 20% of expenditures of qualifying research performed by an energy research association.
Bottom Line: How does this directly help you? To start, for fiscal year end businesses which have already filed a return for a period ending in 2015, you have the opportunity to file an amended return and receive a refund for not claiming credit. Additionally, the benefits keep rolling in for eligible small businesses and small business startups. For tax years ending after December 31, 2015, a small business may use the credit against their AMT liability. For small business startups, there is the possibility to claim up to $250,000 of the credit per year against your employer share of FICA liability.
The Act also permanently establishes the Section 179 expensing limitation at $500,000 in conjunction with a $2 million phase-out limit to be indexed for inflation starting 2016. For a more in-depth explanation of depreciation extenders, please refer to our previously posted blog “Depreciation Extenders: Section 179 made Permanent and Bonus Depreciation given 5-year phase-down”
100% GAIN EXCLUSION ON QUALIFIED SMALL BUSINESS STOCK
As a result of this act, the 100% exclusion gain on the sale and/or exchange of qualified small business stock was made retroactive and permanent. One stipulation for qualification is the stock must have been acquired after September 27, 2010 and before January 1, 2015. Also, the stock must be held more than 5 years. As an added perk, the excluded gain will not be subject to AMT.
REDUCED RECOGNITION PERIOD FOR S CORPORATION BUILT-IN GAINS TAX
PATH permanently and retroactively establishes a five-year recognition period for built-in gain subsequent to the conversion of a C to an S Corporation. This is the same rule that applied to tax years beginning in 2014.
OTHER PERMANENT EXTENDERS:
- Charitable Deductions for the Contribution of Food Inventory
- Subpart F Exception for Active Financing Income
- Employer Wage Credit for Employees who are Active Duty Members of Uniformed Services
- Bonus Depreciation (please refer to our previously posted article referenced above)
- Work Opportunity Tax Credit Extension through 2019
- New Markets Tax Credit
- Look-thru Treatment for Controlled Foreign Corporations under Foreign Personal Holding Company Rules
HEALTH TAX PROVISONS
PATH may also assist businesses with staying on top of Affordable Care Act health plan costs. The ACA excise tax on high-dollar “Cadillac” plans, which originally would have applied to tax years beginning after December, 31 2017, will now be levied starting tax years after 2019. Furthermore, any tax payments will be deductible against income tax.
OTHER TWO-YEAR EXTENDERS:
- Empowerment Zones Incentives
- Three-Year Recovery Period for Certain Race Horses
- Seven-Year Recovery Period for Motorsports Entertainment Complexes
Now that you have recovered from the mad-rush holiday season, invest some time in becoming business extender savvy and potentially save money. Feel free to contact one of our knowledgeable tax advisors to find out exactly how these extenders will work for you.