Take a closer look at some new and improved IRS tax breaks

March 29, 2016|Michael Zuleger

Congress passed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) on December 18, 2015. The PATH Act contains many new and improved provisions to implement when doing tax planning. When tax planning, you may think you should reduce income as low as possible every year. This may not always be the best option if reporting less income this year causes you to pay tax at extraordinary levels in following years.

At a minimum, look at your projected tax over this year and next year. Using lower tax brackets (10% - 25%) and taking advantage of other provisions may be more prudent than maximizing deductions this year.

Consider using these depreciation and expense provisions from the PATH Act when tax planning to get your income to a targeted level.

  • Bonus Depreciation
    • 50% for property placed in service in 2015 through 2017, 40% in 2018, and 30% in 2019
    • New for 2016 – Bonus depreciation is available for Qualified Improvement Property, which is defined as any improvement:
      • To an interior portion of a building,
      • To a building that is non-residential real property, and
      • Placed in service after the date such building was first placed in service
    • The following improvements are not eligible:
      • An enlargement of the building,
      • Any elevator or escalator, or
      • The internal structural framework of the building

You can elect out of bonus depreciation by class life, so you have some flexibility to increase or decrease depreciation if you have asset additions across multiple class lives.

  • Section 179 expense - $500,000 of allowable Section 179 expense has now been made permanent
  • 15-year straight-line depreciation for qualified leasehold improvements, qualified restaurant buildings and qualified retail improvements has been made permanent

The following provisions are not part of the PATH Act but are useful for tax planning.

  • Capitalization policy safe harbor thresholds
    • Safe harbor increased from $500 to $2,500 for taxpayers without an applicable Financial Statement (AFS)
    • Remains unchanged at $5,000 for taxpayers with an AFS
    • Capitalization policy thresholds must be followed for both tax and financial statement purposes
  • New Repair Regulations – Enhanced immediate write-off rather than capitalization
  • Section 179D – Allows builders of energy-efficient buildings to get a deduction of up to $1.80 per square foot
  • Domestic Production Activities Deduction (DPAD)
    • 9% deduction for Qualifying Production Activities Income
    • Construction of real property is eligible for the DPAD

To learn more about how the above items impact your business, please contact Michael Zuleger at 920-997-5333 or your Schenck representative.

Michael Zuleger, CPA, manager with Schenck, has extensive experience providing individual and corporate income tax planning and compliance for closely held businesses, including planning and compliance related to multi-state corporate tax issues. His specialties include taxation issues in the real estate, construction and manufacturing industries.