Selected expired provisions retroactively reinstated for
2015 and made permanent include:
1.
The enhanced expensing election under Section
179 for the cost of purchasing new or used machinery, equipment, and
other business personal property and certain qualified real estate improvements. The expensing limit had dropped in 2015 to
$25,000 with the limit being phased out, dollar for dollar, as the total amount
of property placed in service during the year exceeded $200,000. Now the enhanced limits of $500,000 and
$2,000,000 are reinstated for tax years beginning after 2014 and indexed for
inflation beginning in 2016. In
addition, computer software is eligible for Section 179 expensing and the election
can be revoked without IRS consent.
Furthermore, the $250,000 cap on the portion of the $500,000 expensing
limit that could be used for qualified real estate improvements has now been
removed so that the full expensing limit is available. Finally, for property placed in service after
2015, air conditioning and heating units are considered eligible Section 179
property.
2.
The reduced depreciation period from 39 years to
15 years for qualified leasehold improvements, qualified restaurant buildings
and improvements, and qualified retail improvements. This change significantly improves the
present value of the tax depreciation benefits.
Be sure to check the qualification requirements.
3.
The research tax credit is reinstated for
amounts paid or incurred after 2014.
Taxpayers with fiscal years beginning in 2014 and ending in 2015 and who
have already filed their tax return should consider amending their tax return
to claim the credit on 2015 expenses. In
addition to reinstating the credit, significant improvements have been made to
the usability of the credit. For tax
years beginning after 2015, small businesses having $50 million or less of
gross receipts may claim the credit against their alternative minimum tax (AMT),
thus permitting the credit to reduce tax expense when businesses pay the AMT
instead of regular tax. And in an
important change for start-up businesses having less than $5 million of gross
receipts and that don’t yet have profits and therefore income tax liability to
be able to use the credit, up to $250,000 of credit per year can be used to offset the employer FICA-match tax liability starting
with tax years beginning after 2015, thus making the credit refundable for
these businesses. As a further requirement, the payroll tax credit is not available if the start-up business had gross receipts for any tax year preceding the 5-taxable year period ending with the year of the credit.
4.
The reduction of the S corporation recognition
period from 10 years to 5 years for built-in gains (BIG) tax. When a C corporation elects to become an S
corporation, the double taxation associated with C corporations will end as the
S corporation is a “pass-through” entity and only the shareholder(s) pay income
tax, not the corporation. To prevent a C
corporation from making an S election just prior to the sale of assets in order
to avoid double taxation, a BIG tax is imposed upon the new S corporation if
assets or sold or income is recognized during the first 5 years following the
election. The BIG is the excess of the
fair market value of assets (including goodwill and cash basis receivables) over
their income tax bases on the effective date of the S election. The tax rate on the BIG is the highest C
corporation tax rate in effect.
5.
The basis reduction to stock of S corporations
making charitable contributions of appreciated property is now the tax basis of
the property donated and not the fair market value deduction.
6.
The exclusion of 100% of the gain on the sale of
certain qualified small business stock acquired after 2014 and owned longer
than 5 years, both for income tax and for AMT.
The exclusion is limited to the greater of $10 million or 10 times the
adjusted tax basis of the stock sold.
The exclusion percentage had dropped to 50% with a 7% AMT preference. Among other requirements, in general, the
stock must have been acquired directly from the corporation (original issue),
the corporation must be a C corporation conducting an active trade or business
as defined, and the corporation must have been valued at no more than $50
million at the time the stock was issued.
Selected expired provisions retroactively reinstated for
2015 and extended (but not made permanent) include:
1.
50% bonus depreciation expense of the cost of
purchasing new machinery, equipment, and other business personal
property and certain qualified real estate improvements. The extension of the bonus depreciation percentage amount is as follows:
a.
50% for property placed in service in 2015
through 2017
b.
40% for property placed in service in 2018
c.
30% for property placed in service in 2019
d.
Expired for property placed in service after
2019
2.
The enhanced first-year depreciation ceiling on new
autos and trucks. Tax law severely
limits the amount of depreciation that can be claimed on business vehicles
rated at 6,000 pounds of gross vehicle weight or less. For example, for autos placed in service in
2015, the first year depreciation deduction is only $3,160 assuming the auto
was used 100% for business. The ceiling
was enhanced by $8,000 ($11,160 in total) when bonus depreciation was in
effect. Now that 50% bonus depreciation
has been reinstated, the first year vehicle depreciation limit is increased as
follows:
a.
$8,000 for vehicles placed in service in 2015
through 2017
b.
$6,400 for vehicles placed in service in 2018
c.
$4,800 for vehicles placed in service in 2019
d.
None for vehicles placed in service after 2019
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