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Business Tax Changes for 2016

Over this year, there are some important tax changes for businesses taking effect. Many of the changes are in response to new acts, such as The Protecting Americans from Tax Hikes (PATH) Act of 2015, the Bipartisan Budget Act of 2015, and the Trade Preference Extension Act of 2015. The following are some of the changes that will effect businesses this year:

  • Enhancements for Sec. 179 expensing: This provision changes the investment ceiling and the maximum expensing limit. In 2014, the dollar limitation on expensing deductions was $500,000 and the investment-based reduction dollar limitation only effected property placed in service in the tax year that exceeded $2 million, which was the investment ceiling. Starting in the tax year beginning after Dec. 31, 2014 the maximum expensing limit was to have dropped to $25,00 and the investment ceiling should have dropped to $200,000. Under the PATH Act, the $500, 000 limitation and the $2 million investment ceiling amounts were retroactively extended and made permanent.
  • De minimis expensing safe harbor for taxpayers with no AFS (applicable financial statement) was raised: Under Sec. 162, the final tangible property regulations that permits small businesses to expense their outlays for “de minimis” business expenses. If they were eligible for the de minimis safe harbor, and choose it, the amount paid to acquire or produce any eligible unit of property (or eligible material or supply) is deducted in the year it incurred. This included building improvements that also received a bonus depreciation. Under the prior law, leasehold improvement property qualified for the bonus depreciation, but under the PATH Act, qualified leasehold improvements property is no longer eligible for bonus depreciation. Instead, any property placed in service after December 31, 2015, qualified improvement property is eligible for bonus depreciation. The PATH Act makes this easier by allowing any building improvement to be eligible for depreciation even if the improvements are not property; the improvement no longer needs to be placed in service more than three years after the date the building was first in service; and structural components that benefit a common area are no longer excluded from the qualifying improvements.
  • Research credit for qualifying small business may offset payroll tax: For years beginning after Dec. 31, 2015, qualified small businesses may claim a credit for a portion of their research credit as a payroll credit against their FICA tax liability. This would offset their tax liability.
  • More eligible for differential wage payment credit: Eligible small business employers that pay differential wages can claim the credit. To be eligible for the credit the business must: (1) making payments to employees for periods that they are called to active duty with the US uniformed forces (for more than 30 days) that represent all or part of the wages the employee would have otherwise received from the employer and (2) the employee must be employee for 91 days preceding the period of differential pay. The differential wage payment credit is equal to 20% of up to $20,000 of differential pay made during the tax year.
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