|2015 Tax Extenders
On Friday, December 18, the President signed two bills, including the “Protecting Americans from Tax Hikes (PATH) Act of 2015,” (the “tax extenders package”) providing a number of significant tax changes. Tax provisions in the Acts include the delay of the 40% “Cadillac” tax on high cost employer-sponsored health coverage, the extension of certain energy provisions and credits, retroactively extends roughly 50 taxpayer favorable provisions and makes several others permanent. The most relevant provisions for privately held businesses and their owners include:* Enhanced §179 Expense – Permanent
* Bonus Depreciation on New Asset Purchases-Through 2019
* Research and Development Tax Credits – Permanent
* Built-In Gains Tax Recognition up to 5 Years – Permanent
* Delayed “Cadillac” Tax for 2 years – Until 2020
Enhanced §179 Expensing
The dollar limitation on deducting eligible property is increased to $500,000 (from $25,000) and the placed in service ceiling is increased to $2,000,000 (from $200,000). The $500,000 expensing limitation and $2,000,000 phase-out amounts are now permanent and indexed for inflation in future years. Eligible property includes new and used equipment.
PATH extends bonus depreciation for qualified property acquired and placed in service during 2015 through 2019 for both regular tax and alternative minimum tax (AMT) purposes. For years 2015 through 2017, 50% bonus depreciation is allowed, for years 2018 and 2019, bonus depreciation is 40% and 30% respectively. Generally, qualified property includes new (original use) property with a life less than 20 years.
Research and Development Tax Credit
The revised R&D tax credit begins in 2016. Businesses with less than $50 million in gross receipts are now able to claim the credit against their Alternative Minimum Tax (AMT), thus removing the provision preventing many companies and individuals from claiming the credit in the past. In addition, qualified small businesses ($5 million or less of gross receipts) may now claim a portion of the credit against payroll taxes for up to five years.
S Corporation Built-In Gains Tax Recognition Period
Owners of C corporations will now only be subject to corporate-level tax on the disposition of appreciated assets owned as of the effective date of the S election for five years, rather than the ten years under previous law.
Cadillac Tax Deferral
The so-called 40% “Cadillac tax” on high-priced health insurance plans was scheduled to begin in 2018 and now is delayed to 2020, allowing businesses to maintain their health benefit plans unchanged.
If you would like additional information regarding the tax extenders package, please call Schmersahl Treloar & Co. at 314-966-2727.