Tax Insights 2016 Tax Planning for
Businesses
Recent tax changes offer substantial business benefits for 2016 and future years A VARIETY OF TAX PROVISIONS recently enacted by Congress provide substantial benefits and savings opportunities to businesses in 2016 and beyond. Those tax provisions include:
Permanent Enhanced Section 179 Expensing AS PART OF THE Protecting Americans from Tax Hikes Act of 2015 (PATH Act) that became law in December 2015, Congress permanently established a $500,000 level for first-year expensing under Internal Revenue Code (IRC) Section 179. The $500,000 level is retroactive for 2015 and can be applied to qualified purchases that range up to $2 million in value. The deduction is phased out for purchases exceeding $2 million. Qualifying purchases include equipment purchased for business use, tangible personal property used for business, any business vehicles with a gross vehicle weight exceeding 6,000 lbs., computers and off-the-shelf software. A qualifying item must be placed in service during the year in which the expense is claimed. Section 179 expensing levels will be adjusted annually for inflation.
Permanent Establishment of Research and Experimentation Tax Credit (R&D Credit) THE R&D TAX CREDIT WAS INTRODUCED as a temporary measure in 1981. While the credit was repeatedly extended by Congress, it did not become a permanent tax provision until passage of the PATH Act. The credit may be applied to a variety of activities that address uncertainty and relate to the development or improvement of a business component. Starting with the 2016 tax year, businesses with less than $50 million in gross receipts may use the credit to offset Alternative Minimum Tax (AMT) obligations. Businesses with less than $5 million in annual gross receipts and having gross receipts for no more than five years may also use the credit to offset payroll tax obligations.
Extension of Worker Opportunity Tax Credit (WOTC) Through 2019 THE WOTC WAS CREATED IN 1996 and continually modified and extended, with the PATH Act extending the credit through 2019. The WOTC is available to employers who hire from targeted groups, including veterans, persons with disabilities, various recipients of government aid, and individuals unemployed for at least 27 weeks in the one-year period preceding the hiring date. Tax credits range up to $9,600 for first-year wages paid to qualifying employees.