Protecting Americans From Tax Hikes (PATH) Act of 2015 Passed
December 21, 2015
Both business owners and individual taxpayers could see major tax benefits from a tax bill that has been signed into law by President Obama. This sweeping legislation makes many tax incentives permanent that have needed repeated annual extensions – often passed in the last days of the year, like this one. This tax bill is called the Protecting Americans From Tax Hikes (PATH) Act of 2015 and retroactively extends many tax provisions for 2015 as well as making others permanent.
To understand the true impact of this legislation on your own tax situation, contact your AGH tax professional as soon as possible to help you determine what provisions may offer the best benefit for you and what actions you must take before year-end.
What Has Changed?
Here’s a brief overview of the various tax topics the bill addresses, and what changes the legislation will make.
Research and Development Tax Credit
Research and development tax credit (R&D, also called R&E): Made permanent, after more than a dozen annual extensions. New this year, the bill would allow qualified taxpayers to use the credit against not only income tax, but also apply it against alternative minimum tax (AMT) and for some small businesses, against payroll tax (FICA) liability. R&D credits allow taxpayers to earn tax credits for qualifying R&D expenses in addition to the deductions they are already allowed.
Section 179 Expensing
Section 179 expensing: Made permanent with expense deduction limit increasing in 2016. Reinstates the maximum expense deduction to what it was in 2014: $500,000 for qualifying depreciable businesses assets acquired in tax years beginning in 2015 with the deduction phasing out at $2,000,000. The expensing limit had dropped to $25,000 with the phase-out beginning at $200,000 when the previous year’s bill had expired. The bill also allows for inflation by indexing the limit and phase-out point starting in 2016.
Qualified Leasehold Improvements
Qualified Leasehold Improvements: Makes the shorter 15-year depreciation life permanent for qualified leasehold improvements made to the interior portion of certain nonresidential real property. This includes qualified restaurant property and retail improvement property. The depreciable life had increased to 39 years for leasehold improvements made after Dec. 31, 2014 when the previous bill expired.
Bonus Depreciation Expense Deduction
Bonus depreciation expense deduction: Extends the 50% bonus depreciation deduction for qualified depreciable property acquired and placed in service during 2015, 2016 and 2017, with phased down percentages of 40% in 2018 and 30% in 2019. Bonus depreciation was scheduled to expire for property placed in service after Dec. 31, 2014.
Reduction of S Corporation Built-In Gains Recognition Period
Reduction of S corporation built-in gains recognition period: The 5-year period for which an S corporation which has converted from a C corporation must hold its assets to avoid the tax on built-in gains has been made permanent – down from the previous 10-year period.
What Else You Need to Know
While the provisions of the tax bill mentioned in this alert affect primarily business owners, the legislation contains hundreds of changes to tax laws that will affect businesses, individuals, investors, foreign transactions, and even the IRS itself.
The extensions and changes for both businesses and individuals are too numerous to outline in detail, which is why it’s even more important to meet with your AGH tax professional to determine how you and your organization may be able to benefit.
One last note – the IRS had already warned taxpayers to expect a delayed start to the 2015 tax filing season if significant changes to tax laws were made late in the year. This is indeed the case, and as the IRS struggles to incorporate this new Act, the tax season will again be compressed into a shorter time. All taxpayers should expect delays if they need to contact the IRS directly for assistance, and should make every effort to provide their tax records and materials to their tax professional as soon as possible in 2016.
What if I have questions?
For more information or questions about how this may affect you, please contact your AGH tax professional or AGH senior vice president of tax services Shawn Sullivan using the contact information below.
Senior Vice President
Shawn serves as one of two primary leaders in the firm’s large tax group. He has extensive public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, wholesale/retail distribution, real estate development and management, construction, and contractor industries. In addition to enhancing business performance to minimize tax consequences, he has experience in mergers and acquisitions and international tax and business structuring.
A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.
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NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.