While 2015 was an off year in terms of major tax law changes coming from Congress, our elected representatives did cook up quite a smorgasbord of extensions — many permanent — for a wide array of existing tax breaks on which most small businesses rely.
Under the delightfully ironic title of "Protecting Americans from Tax Hikes Act of 2015" (they protect us from the taxes they passed), the PATH law should do a lot to reduce the annual game of fiscal chicken, where revved-up tax breaks race the calendar to get extended before they die Dec. 31. Sort of like PATH Act itself, which passed Dec. 18.
Section 179 deduction
My personal favorite among deductions — and one just about any small business can take advantage of — is good ol' Section 179. It's so popular it has its own IRS form and booster website, Section179.org.
I'll always fondly recall when I first used Section 179 to write off my computer equipment the same year I bought it. No more dinking around with depreciation schedules, just "Bam!' and it's gone.
PATH permanently extends the small-business expensing limitation and phase-out amounts ($500,000 and $2 million, respectively) that were in effect from 2010 to 2014 rather than letting them drop back to $25,000 and $200,000.
Also, the special rules that allow expensing for computer software and qualified real property (leasehold improvement, restaurant and retail improvement property) are permanently extended, and the $250,000 cap is eliminated beginning this year. The cherry on top treats air conditioning and heating units placed in service after 2015 as eligible for expensing.
Incentives for growth, innovation
For property acquired and put into service in 2015 that doesn't fit under Section 179, there's bonus depreciation of 50 percent locked in until 2017, 40 percent in 2018, and 30 in 2019, making it possible to plan equipment purchases.
On the R&D front, PATH permanently extends the Research and Experimentation Tax Credit that had been extended 15 times since its creation in 1981. Additionally, beginning in 2016, eligible small businesses ($50 million or less in gross receipts) may claim the R&D credit against alternative minimum tax (AMT) liability, or use it against the employer's payroll tax (i.e., FICA) liability.
Oh, and don't rule yourself out too quickly like tens of thousands of small and medium businesses wrongly do. A broad range of common practices in many industries will qualify for the credit under the Internal Revenue Code's definition of R&D.
Other PATH provisions include:
- Permanently extending the 20 percent wage credit for employees called up to active military duty, and applying it to all employers, not just those with 50 or fewer employees.
- Permanently extending application of the 9 percent minimum credit rate for the low-income housing tax credit for nonfederally subsidized new buildings.
- Extending through 2016 the above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation and hot water systems of commercial buildings.
For more browsing for tax savings, including (I kid you not) "certain race horses," rum excise taxes and economic development in American Samoa, go to the PATH summary put out by the House Ways and Means Committee.
