BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Last-Minute Tax Bill Means Big 2016 Tax Savings For Businesses

Following
This article is more than 8 years old.

While we were preparing for holiday vacations, a crucial $1.1 trillion tax and spending bill quietly became law.

Despite the eye-popping price tag, the Protecting Americans from Tax Hikes (PATH) Act of 2015 would be easy to ignore, assuming it was nothing more than the business-as-usual retroactive tax legislation we’ve seen in past years.

But you’d be mistaken if you thought:

  • Congress simply was making its annual, last-minute approval of enhanced business deductions such as the popular expensing and depreciation rules.
  • It’s just a hodgepodge of special interest rules focused on such arcane subjects as the modification of the definition of hard cider and the classification of certain race horses as three-year property.
  • Because the year is over, you’re too late to take advantage of the law’s tax provisions.

In reality, PATH is an important law. It will have significant, immediate impacts on businesses and will continue to have consequences for years to come.

For specifics on your business, work with a tax advisor who has digested the finer points of the new law. Broadly, I will highlight a few of the interesting business-based changes paved by PATH.

Many tax-saving opportunities

That $1.1 trillion cost is a good indicator of the bill’s potential tax savings. The permanent extension of the Section 179 expensing deduction alone will cost the government $77 billion in tax revenue over the next 10 years. And the extension of the research tax credit means a whopping $113 billion in lost revenue. As so often goes in politics, while including a few revenue generators, the law leaves open for future debate how to pay for the entirety of these tax savings. As it will be for Congress, that’s a topic for me for another day.

The law makes permanent over 20 key tax provisions, extends other provisions for five years, and in some cases, enhances the extenders.

The law has provisions dealing with individuals, businesses and tax-exempt organizations. And it includes new administrative and budgetary changes dealing with the IRS. The promise in the bill’s catchy “Protecting Americans from Tax Hikes” title is actually fairly accurate.

Below is a short sampling of provisions that affect businesses, their taxes and their operations. Hopefully these examples will whet your appetite, and encourage you to learn more.

Start-ups and growing businesses

Newer businesses have enough revenue challenges without having to deal with high federal taxes. The new law enhances the tax-saving opportunities for these operations.

Under PATH, the dollar limit for Section 179 expensing is permanently moved from $25,000 to $500,000, with a $2 million overall investment limit before phase out.

Because the law also removes the $250,000 cap for qualified property, many businesses now have a reason to postpone larger purchases of such property until 2016. And while bonus depreciation is not permanently extended, it at least has been extended under a phase-down schedule through 2019.

Particularly for start-ups, there’s an important tax extender that has been made permanent – the 100 percent exclusion for gain on the sale or exchange of qualified small business stock held for more than five years by non-corporate taxpayers. This has proven a valuable way of funding some start-ups, and now that the law is being made permanent, it should become a more common financing tool.

Healthcare changes

For many businesses, the Affordable Care Act (ACA) presents an ongoing challenge. The new law provides some relief along these lines. For example, the controversial tax on “Cadillac” plans has been delayed for two years, giving businesses more time to adjust.

Other ACA provisions indirectly have the potential to raise healthcare costs for businesses. But the new law imposes a moratorium on the ACA excise tax on medical devises for the next two years and a moratorium in 2017 for the health insurance provider fee.

Companies must continue to adapt to the ACA, but at least the new law provides some breathing space.

Business owner exit planning

Business owners who are contemplating an eventual exit from their companies have some new planning opportunities.

For an owner contemplating a conversion from a C to an S corporation, the new law means it won’t take as long for tax advantages to be enjoyed. The law makes permanent the five-year (versus previous 10-year) recognition period for built-in gain following the conversion.

Other potential exit tax planning provisions that have been made permanent include the special rule for contributions of real property for conservation purposes and the ability for individuals age 70 ½ to make tax-free distributions from an IRA to a charity.

The scramble for last-minute 2015 tax savings is over. With the beginning of a new year, the true opportunity for tax planning has started. And the government has bestowed a gift on business owners. As newly minted House Speaker Paul Ryan recently said, “We are ending Washington’s days of extending tax policies one year at a time.” Make a resolution for 2016 to work with your advisors to save taxes.