Every year tax law changes impact the business landscape as Congress attempts to influence consumer and business actions. This year is no different. These tax law changes can help you save money on what you have to pay Uncle Sam as well as create opportunities for your business to find extra money to improve your operation. As part of the omnibus spending bill, Congress at the end of last year reapproved many deductions and other popular tax breaks.
Section 179 Deductions
Section 179 deductions used by businesses to deduct the full purchase price of qualifying equipment/machinery and software bought or financed during the tax year were renewed. So if you have been waiting for the right time to save on your tax bill and invest in the future of our business, now may be the time. Although many people think the Section 179 deductions are difficult to understand, they are really quite simple. Businesses can deduct the full purchase price from their gross income for federal tax purchases. If you have been waiting for an effective tax advantage to purchase machinery, this is your opportunity.
Section 179 is targeted to benefit small businesses since the total deduction is capped. According to what Congress recently passed and was signed into law by President Obama, Section 179 will be permanent at the $500,000 deduction cap level and the additional 50% bonus depreciation will be extended through 2019. Businesses exceeding a total of $2 million of purchases in qualifying equipment will have the Section 179 deduction phase-out dollar-for-dollar and completely eliminated above $2.5 million. Additionally, the Section 179 cap will be indexed to inflation in $10,000 increments in future years.
A 50% bonus depreciation will be extended through 2019. Businesses of all sizes will be able to depreciate 50% of the cost of equipment acquired and put in service during 2015, 2016 and 2017. Then bonus depreciation will phase down to 40% in 2018 and 30% in 2019.
Estate Tax Law Changes
Congress has raised the estate and gift tax exemption for 2016 to $5,450,000. That’s the good news. Unfortunately, the rate remains 40%, and the gift tax exclusion stays $14,000 per person receiving the donation.
More good news… up to $1,110,000 of farm or business realty can receive discount estate tax valuation. More estate tax liability qualifies for an installment payment tax break. If one or more closely held businesses make up greater than 35% of an estate, as much as $592,000 of tax can be deferred, and the Internal Revenue Service (IRS) will charge only 2% interest.
Other Updates for 2016
Hiring and taking care of your employees can also result in tax credits. Small firms that offer health coverage can qualify for a tax credit. But the challenge is that the full credit only applies to companies with less than 11 full-time-equivalent employees and average wages of $25,900 or less. The credit diminishes rapidly as the number of employees and wages increases.
Businesses that hire the long-term unemployed can qualify for a tax credit. The work opportunity tax credit is expanded to cover employers that hire people who’ve been out of work for 27 weeks or more and received unemployment benefits.
If you want to work on a new idea or venture, the research & development credit has been made permanent and altered a bit. Beginning in 2016, small start-up firms can elect to claim up to $250,000 to offset their payroll taxes instead of their income tax liability. This option is available to companies in business for five years or less that have gross receipts under $5 million. Also, firms with average annual gross receipts over three years of $50 million or less can take the credit against both regular income tax and the alternative minimum tax.
Info Box.
2015 Section 179 Tax Deduction Calculator
http://www.crestcapital.com/tax_deduction_calculator
General Information on 179 Deduction
www.Section179.Org
IRS 179 Deduction Information
https://www.irs.gov/publications/p946/ch02.html
