Our recent blog post Year-End Planning 2015 (posted on December 4, 2015) mentioned the possibility of some upcoming tax extender legislation.  Sure enough, on December 18, 2015 the President signed the bill.  Known as the Protecting Americans from Tax Hikes (PATH) ACT, it made permanent or further extended many of the more than 50 tax breaks that had expired on December 31, 2014.  Despite its rather cheesy title, most of the tax breaks are of little interest to most people.

A few of the items impacted by the tax extender bill, however, are significant in our opinion and, more importantly, will provide clarity for some major business decisions during the tax year without having to be at the mercy of congress at the end of the year.  The following are a few of those:

Increased Section 179 Expensing Made Permanent

The Internal Revenue Code Sec. 179 expensing limitation and phase-out amounts in effect from 2010 to 2014 of $500,000 and $2 million, respectively were made permanent and indexed for inflation.  They had been scheduled be reduced back to $25,000 and $200,000, respectively for the 2015 tax year.  The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended.

Bonus Depreciation Extended Through 2019

In 2014, taxpayers were entitled to a 50 percent bonus depreciation deduction for assets placed in service that year. PATH extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period).  The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016, and 2017, and is phased down to 40 percent in 2018, and 30 percent in 2019.

PATH also allows you to elect to accelerate the use of alternative minimum tax (AMT) credits in lieu of taking the bonus depreciation.

Research Tax Credit Made Permanent

Another big win for businesses is the permanent extension of the research and development (R&D) tax credit under PATH.  Additionally, beginning in 2016, a qualified small businesses ($50 million or less in gross receipts) may claim the R&D credit against AMT liability, and the credit can be utilized by certain small businesses ($5 million or less in gross receipts and no gross receipts for any tax year preceding the five-tax-year period ending with such tax year) against the employer’s payroll tax (i.e., FICA) liability.

The following is a brief list of some of the other tax extender legislation provisions:

Our tax experts are well equipped to guide you through the tax extender legislation and any other challenging tax issues you may be experiencing. For a successful 2016 tax season, contact us as soon as possible.