The highly-anticipated tax extenders bill, named the Protecting Americans from Tax Hikes Act of 2015 or the PATH Act, was signed into law on Friday, December 18. Many expected that Congress would simply extend the effective dates of all the usual expired provisions without making any substantive changes as they have routinely done in recent years, but the final legislation did much more than that. Several of the usual "extender" provisions were made permanent, others were extended through 2019, and some were extended through 2016.
One of the provisions made permanent in the new Act is the research and development tax credit. In addition to becoming permanent, the R&D credit will apply against Alternative Minimum Tax (AMT) for eligible small businesses starting with credits generated in 2016. The threshold for being a "small business" for these purposes is average annual gross receipts of $50 million or less. Certain smaller start-up companies will be able to use the R&D credit against their FICA tax liability as well.
Another business provision made permanent in the new Act is the increased limit for asset expensing under Sec. 179. The $500,000 limit that has been in place for the last several years (which starts to phase out once eligible asset additions exceed $2 million for the year) is now permanent and will be indexed for inflation starting in 2016. Bonus depreciation has been extended through 2019, at a 50% rate for 2015 through 2017, 40% in 2018, and 30% in 2019.
Individual Income Tax provisions that were made permanent include the charitable distribution from IRAs, the state and local sales tax deduction, the enhanced education benefit under the American Opportunity Tax Credit, and the enhanced Child Tax Credit, among others.
Here's a list of PATH Act highlights:
Permanently Extended Provisions
- Research and Experimentation (R&D) Credit
- Enhanced Sec. 179 Expensing
- Qualified Leasehold/Restaurant/Retail Improvement Accelerated Depreciation
- 5-year Built-in Gains Tax Period for S Corporations
- Enhanced Child Tax Credit
- Enhanced American Opportunity Tax Credit
- Qualified Charitable Distributions from IRAs
- Teachers' Classroom Expenses Deduction
- State and Local Sales Tax Deduction
- Earned Income Tax Credit Enhancements
- Qualified Conservation Easement Contribution Enhancements
- 100% Exclusion of Gain on Certain Small Business Stock Sales
- Enhanced Deduction for Charitable Contributions of Food Inventory
Provisions Extended Through 2019
- Bonus Depreciation
- New Markets Tax Credit
- Work Opportunity Tax Credit
Provisions Extended Through 2016
- Qualified Principal Residence Debt Forgiveness Exclusion
- Qualified Tuition and Expenses Deduction
- Deduction for Mortgage Insurance Premiums
- Empowerment Zone Tax Incentives
- Energy Efficiency and Alternative Energy Credits
To learn more about the new PATH Act and how it may affect your business, contact a Boulay advisor at 952.893.93320 or learnmore@BoulayGroup.com.
Download article: Tax Extenders Bill Delivers More Than Expected