There have been two recent changes in tax laws that affect business decisions. One is the increase in De Minimis Safe Harbor Expensing Threshold in IRS Notice 2015-82 and the other is the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).
De Minimis Safe Harbor Expensing Threshold:
There was a change in the repair and expensing rules in 2014. Under those rules many of you signed a policy to expense items that cost under the de minimis safe harbor of $500. This allowed you to deduct the cost of items under $500 instead of capitalizing and depreciating those items. The IRS now allows you to change your policy so that you may deduct in 2016 the items costing less than $2,500. If you did sign a policy under the previous rules, you may want to change your policy to deduct items costing up to $2,500. This policy should be in writing and signed as soon as possible.
The PATH Act was passed by the US House and the US Senate and signed into law by the President on December 18, 2015. Some of the provisions in the act are permanent and others are for a limited amount of time. The following are some of the provisions that may affect you.
Code Section 179 Depreciation:
The Code Section 179 expensing was scheduled to revert back to a limit of $25,000 for 2015. The Path Act permanently sets the expensing limit at $500,000 with a $2,000,000 investment limit for tax years beginning in 2015 and subsequent years. These amounts will be indexed for inflation for 2016 and subsequent years.
The Path Act extends the bonus depreciation under a phase-down schedule for calendar years 2015 through 2019. Bonus depreciation is 50% for 2015-2017; 40% in 2018; and 30% in 2019.
Other Tax Credits and deductions:
- The research and development (R & D) tax credit has been permanently extended with an increase from 14% to 20% of qualified costs.
- The 100% exclusion allowed for gain on the sale or exchange of qualified small business stock held for more than five years is made permanent.
- The PATH Act makes permanent the 5 year recognition period for built-in gain following conversions from a C corporation to an S corporation.
- The Work Opportunity Tax credit is extended through 2019.
These are important updates that could affect your 2016 business year. If you have any questions, please click the button below to start your conversation with a CPA at LBA Haynes Strand today!