Omnibus Tax and Spending Bill Passed, Includes Important Business Deducations

The President signed Public Law No. 114-113, which is the Consolidated Appropriations Act of 2016.

The Bill passed in the House on a vote of 316-113 and in the Senate on a vote of 65-33.  It was then signed into law by the President.

The final law included a number of tax provisions that are important to ASA members:

  • Extension and modification of research credit
    • The research tax credit is made permanent (distributors may be able to use this when developing new ways to more efficiently engage in distribution, for example)
    • This can be used as a credit against AMT in the case of eligible small busiensses
  • Extension and modification of employer wage credit for employees who are active duty members of the uniformed services
    • The termination provision has been struck, which makes this provision permanent
    • The wage differential provision, which only applied to small businesses, will start to apply to all businesses in 2016
  • Extension and modification of increased expensing limitations under section 179
    • As expected, the $500,000 limit on expensing was made permanent
    • An inflation adjustment was added to increase the section 179 expensing limit in increments of $10,000 to keep up with inflation
  • Extension and modification of bonus depreciation
    • This was extended generally for 2015 only
    • An additional provision extends it for 2016-19 but only for certain software, water utility property and qualified improvement property
    • This bonus depreciation may also apply to certain transportation property (tangible personal property used in the trade or business of transporting persons or property) that has a recovery period of at least 10 years

As always, consult with your tax advisor to see how these provisions may affect your business.

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Congress Considers Expensing Provision that Would Permanently Benefit Distributors

Earlier this year, ASA joined with other trade associations to express support for H.R. 636, the America’s Small Business Tax Relief Act of 2015, sponsored by Rep. Pat Tiberi.

The legislation seeks to make permanent the higher thresholds for section 179 expensing. This is the tax law that allows a small business to treat certain capital investment as expenses (which means that it can be fully deducted in the year of the expense, instead of depreciating it over a period of years). It started at just $25,000 and over the years, has been ‘temporarily’ extended on a recurring basis at increasingly higher levels (it has been set annually at $500,000 since 2010).

Industry has come to rely on this expensing provision in order to immediately deduct investments in equipment, from racking to lift trucks. This allows small distributors to better invest in modern distribution equipment that increases efficiency.

The section 179 expensing provision has been an important tax issue for many years. Because it has been around for many years, many small aerospace companies rely on the deduction provision as the basis for their own investment decisions.

The section 179 expensing provision has not yet been extended for 2015. This means that your 2015 limits on section 179 expensing are $25,000 (not $500,000) and the ability to use the provision begins to phase-out when the business invests $200,000 and fully phases out at $225,000. If it were extended as proposed, then it would apply to up to $500,000 in equipment investment, and would not phase out until the annual investment amount exceeded $2,000,000.

There is a very good chance that permanent Section 179 expensing at $500,000 could be included in the year-end tax extenders package, which Congress expects to debate and pass very soon. This would be a huge victory for small businesses, and the culmination of a lot of work by many trade associations and lobbyists to raise the profile of this issue and get it addressed by Congress.

If this is an important issue to your business, then you may wish to send letters or emails to your own members of Congress (House and Senate) expressing your opinion on the permanent extension of Section 179 expensing at $500,000.

Congress Working to Renew Business Tax Provisions

What do the following tax provisions all have in common?

  • Research and Development Tax Credit
  • Bonus Depreciation
  • Increased Expensing Limits

They are all business-friendly tax provisions that expired at the end of last year, and thus could be unavailable for businesses when they file their 2014 taxes.

These provisions have all been “temporary ” tax provisions that are regularly renewed.  The fact that they are regularly renewed means that businesses have come to rely on their regular renewal, and expect these provisions to be available.  This could be a real problem for American businesses if the provisions were not renewed; it would lead to unexpectedly high taxes for businesses.  In order to remedy the fact that these provisions are not yet renewed, Congress is still looking to reauthorize these provisions.

On December 3, the House of Representatives passed legislation that would extend these tax provisions by a year.  The measure passed by a vote of 378 – 46.  The bill is HR 5771.

The Senate is planning on taking this matter up, but wants to pass a two-year extender bill, to give businesses more confidence.

All of this needs to happen rapidly, because Congress will soon adjourn for the holidays.

Congress Passes New Budget Deal – What Does it Mean?

As you reach the office this morning, you will no doubt have already heard that Congress has passed a deal averting the fiscal cliff (at least for now).

But this is a tax bill and tax bills are rarely simple.  This tax bill is not a straightforward agreement to merely avert the fiscal cliff; it includes numerous authorizations and reauthorizations that affect a wide variety of people and businesses.

So what are the clauses that are most likely to affect the ASA Community?  Here are a few:

  • Extension and modification of research credit – this credit is extended through 2013, with new rules that apply when a company acquires another company.
  • Extension of employer wage credit for employees who are active duty members of the uniformed services – this permits an eligible small business employer to take a credit for differential wage payments made to qualified employees.
  • Extension of increased expensing limitations – the increased limit on Section 179 expensing, which has been scheduled to be reduced to $25,000, is extended for 2013.  This means that for 2013, businesses will be able to expense up to $500,000 (there are limits to this provision).
  • Extension of bonus depreciation – the bonus depreciation provisions are extended for another year, so they cover property put into service in 2013.  Bonus depreciation permits the first year depreciation for depreciable property to be increased, permit an acceleration of deductions related to such property.

As always, this article is meant to provide some ideas about what tax options may be available, but it is not meant to reflect tax advice.  For specific tax advice, you should consult with your tax attorney or accountant.

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