Path Act of 2015 Tax Break Extensions for Businesses

 

On December 18, the President signed into law the Protecting Americans from Tax Hikes Act of 2015, (PATH Act). The new law retroactively extends many business tax breaks for the 2015 tax year. Many parts of this legislation bring consistency to annual tax planning by making previously temporary tax laws permanent. 

 

If you have made business decisions over the past year on the assumption that the tax breaks would be extended, your bet has paid off. If you've held off on making certain investments until the tax incentives were in place, you now have a narrow window of opportunity to take advantage of the extensions.

 

The two biggest items that may affect you are the increased expensing allowance and the increased bonus depreciation provisions. For tax years beginning in 2015, you can now expense up to $500,000 of qualified property placed into service in those years (i.e., the Section 179 deduction). This tax break has been made permanent and will increase with yearly inflation adjustments starting in 2016. Had this tax break not been extended, the maximum amount you could expense for 2015 would have been $25,000. Note that the total amount of property that you can place into service before having to reduce your Section 179 deduction is $2,000,000. The amounts that may be expensed can include up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property; beginning after 2015 the $250,000 cap is eliminated.

 

Bonus depreciation is extended for five years.  Under this tax law bonus depreciation will be 50 percent for property placed in service in 2015, 2016 and 2017. Starting in 2018 the percentage starts phasing out, dropping to 40 percent in 2018 and 30 percent in 2019. Bonus depreciation will completely expire after 2019 unless it is extended again.

 

Bear in mind that if you decide to make any last-minute investments to take advantage of the increased Section 179 expensing limits or the extended bonus depreciation provisions, any assets acquired would have to be placed in service by December 31.

 

Numerous other favorable tax incentives were extended under the new law. The following is a list of some of the tax provisions that were extended or made permanent:

 

(1) the tax credit for research and experimentation expenses; made permanent;

 

(2) the new markets tax credit; extended through 2019;

 

(3) the work opportunity tax credit; extended through 2016;

 

(4) the 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements; made permanent;

 

 (5) the rule for adjusting stock of an S corporation making charitable contributions of property; made permanent;

 

(6) the reduction of the recognition period for the built-in gains of S corporations; made permanent;

 

(7) the 100 percent exclusion from gross income of gain from the sale or exchange of certain small business stock; made permanent;

 

(8) the 9 percent low-income housing tax credit rate for newly constructed non-federally subsidized buildings; made permanent;

 

(9) the deduction for contributions of food inventory by taxpayers other than C corporations; made permanent;

 

(10) tax incentives for investment in empowerment zones; extended through 2016;

 

(11) rules for the tax treatment of certain dividends of regulated investment companies (RICs); made permanent; 

 

(12) the subpart F income exemption for income derived in the active conduct of a banking, finance, or insurance business; made permanent.

 

As you can see, the provisions in the Protecting Americans from Tax Hikes of 2015 are quite extensive. Please call our office to schedule an appointment if you would like to discuss how they will affect your 2015 tax liability, and how to best leverage these tax breaks to the advantage of your business during the small window of time available.