Tax Law Changes in 2016 for Businesses and Families
Just before recessing for the holidays, a bi-partisan House and Senate passed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and President Obama signed the Act. The Act does considerably more than the typical tax extenders legislation seen in prior years. It makes permanent over 20 key tax provisions, including the research tax credit, enhanced Code Sec. 179 expensing, and the American Opportunity Tax Credit. It also extends other provisions, including bonus depreciation, for five years; and revives many others for two years.
The Act also made permanent some tax credits for working families. While not perfect, the package saves the current version of the Earned Income Tax Credit and Child Tax Credit representing a benefit for working families, and supports charitable giving in local communities. Now eligible American workers will have permanent access to the full Earned Income Tax Credit and Child Tax Credit, which, in my opinion, will significantly benefit local communities and small and medium sized businesses around the country.
Three Key Changes for Businesses
Small businesses can immediately deduct up to $500,000 of investments. This means you can deduct, rather than capitalize and depreciate your investment over time, so it’s now easier and the benefit much greater. Remember, previously, if you were a small business you were allowed only a $25,000 a year deduction. The Act makes the change permanent, and even indexes the deduction for inflation.
If you make capital expenditures of more than $500,000 it allows businesses to immediately deduct 50 percent of many investment costs. However, the PATH Act only extends bonus depreciation until the end of 2019, rather than making it permanent, and yet hopefully this will be extended when the time comes.
Research and Development and Experimentation. This will be big for many businesses. This type of expenses is a credit, not a deduction, so it’s much better. So the PATH Act permits businesses that engage in research activities to lower their taxes.
There are other changes as well which benefit businesses and families. If you want more information, give us a holler.
Happy New Year!