2016 Business Tax Legislation Highlights
As we approach the end of 2016, companies should consider exploring opportunities to help minimize their 2016 tax bills and plan ahead for 2017. The summaries below touch on topics that should have the most impact on the business community. If you have questions about these updates and potential tax-saving opportunities, please contact us for a consultation.
NEW FOR 2017 – DUE DATE CHANGES EFFECTIVE FOR 2017 FILING SEASON
Below is a list of the new federal due dates that apply to 2016 tax returns and the 2017 filing season and beyond.
- Partnership Form 1065
Newly Enacted Due Date: March 15 (extended due date September 15)
Original Due Date: April 15
- C Corporation Form 1120
Newly Enacted Due Date: April 15 (extended due date September 15)
Original Due Date: March 15
- C Corporation Fiscal Year End
Newly Enacted Due Date: The 15th day of 4th month after year-end
(extended 15th day of 10th month)
Original Due Date: The 15th day of 3rd month after year-end
- FinCEN Report 114
Newly Enacted Due Date: April 15 (extended due date October 15)
Original Due Date: June 30
- Form 1099-MISC
To be filed on or before January 31, 2017, when you are reporting nonemployee compensation payments in box 7. Otherwise, due date remains February 28, 2017.
- Forms W-2 & W-3
To be filed on or before January 31, 2017
2016 RECAP OF ENACTED TAX PROVISIONS
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and the Consolidated Appropriations Act (cumulatively referred to as “the Act”) passed in late 2015 remains a focal point of tax guidance for the upcoming 2017 tax season. Highlighted below are a few of the more widely applicable provisions affecting businesses.
Research and Development Tax Credit
The research and development (R&D) tax credit is available to taxpayers with specified increases in business-related qualified research expenditures and for increases in payments to universities and other qualified organizations for basic research.
The Act creates new avenues for certain small businesses to utilize the credit beginning in 2016. Historically, small and early-stage companies have been limited in their ability to utilize the credit in years with little or no profit. Now, beginning in 2016:
- Payroll tax offset: “Qualified small businesses” may elect to claim the credit against payroll tax liability of up to $250,000 per year for up to five tax years (applicable to businesses with less than $5 million gross receipts for the current tax year and none for any tax year before the five tax years ending with the current year).
- AMT offset: “Eligible small businesses” may claim the credit against alternative minimum tax (AMT) liability (applicable to businesses with average annual gross receipts of $50 million or less for the three preceding tax years).
Section 179 Enhanced Expensing
Pre-Act, the dollar limit for Code Sec. 179 expensing for 2015 had reverted to $25,000 with an investment limit of $200,000. The Act permanently sets the Code Sec. 179 expensing limit at $500,000, with a $2 million overall investment limit before phase out (both amounts indexed for inflation beginning in 2016).
The Act also makes permanent the special Code Sec. 179 expensing for qualified real property (including qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property). The Act removes the $250,000 cap related to this category of expenditure beginning in 2016.
Also made permanent is the special rule allowing off-the-shelf computer software to be treated as Code Sec. 179 property, as well as the ability of a taxpayer to revoke a Code Sec. 179 election without IRS consent.
The Act temporarily extends bonus depreciation (additional first-year depreciation) under a phase-down schedule through 2019:
- at 50 percent for 2015-2017;
- at 40 percent in 2018; and
- at 30 percent in 2019.
The Act modifies bonus depreciation after 2015 to include qualified improvement property without regard to whether the improvements are subject to a lease and removes the requirement that the improvement be placed in service more than three years after the building was first placed in service. In addition, qualified improvement property may include structural components that benefit an internal common area.
Taxpayers may still elect to accelerate the use of prior year alternative minimum tax (AMT) credits in lieu of bonus depreciation under special rules for property placed in service during 2015. Beginning in 2016, the Act modifies the AMT credit rules by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation.
Summary of Significant Items Permanently Extended:
- Research and Development tax credit (discussed above)
- Enhanced expensing under Code Sec. 179 (discussed above)
- 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
- Employer wage credit for activated military reservists
- Charitable deduction for contributions of food inventory
- Basis adjustment to stock of S corporations making charitable contributions of property
- Reduction in S corporation recognition period for built-in gains tax
- Treatment of certain dividends of regulated investment companies
- Exclusion of 100 percent of gain on certain small business stock
- Subpart F exception for active financing income
Summary of Significant Items Temporarily Extended Through 2019:
- Bonus depreciation (more below)
- Work Opportunity Tax Credit (extended and modified)
2017 MILEAGE RATES
In December, the IRS issued the 2017 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, medical, moving and charitable purposes. The optional business standard mileage rate for 2017 is 53.5 cents per mile, a decrease of only .5 cents compared to 2016. The optional standard mileage rate for medical and moving expenses for 2017 is 17 cents per mile, a decrease of 2 cents compared to 2016. The optional standard mileage rate for charitable expenses is set by statute and remains at 14 cents per mile.
REVISED REPAIR REGULATION RULES – INCREASED DE MINIMIS CAP
At the end of 2015, the IRS increased the de minimis safe harbor limit under the repair regulations from $500 to $2,500 for taxpayers without an applicable financial statement (AFS). The $2,500 threshold took effect starting with tax year 2016. However, the IRS also provided “audit protection” to qualified taxpayers by not challenging use of the new $2,500 threshold if used retroactively in tax years prior to 2016.
The de minimis safe harbor election effectively allows a business to deduct amounts paid to acquire or produce tangible property, rather than capitalize them, to the extent such amounts are deducted for financial accounting purposes. For businesses with an AFS, the safe harbor threshold is $5,000 per invoice or item. For businesses without an AFS, the safe harbor threshold is now $2,500 per item or invoice, as discussed above.
The provision is an election, not an accounting method change. In order to take advantage of the election, the company must adopt a policy under its financial accounting (or “book”) policy, stating that items will be deducted up to a specified threshold. Generally, this policy must be adopted by the end of the tax year, in writing, for application to the succeeding tax year.
If you have questions about how these law changes may affect your business, or whether any changes were enacted that may impact your particular industry or entity structure, please contact our tax team at 512.610.7200.