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Tax Update

Business impact of new tax act*
Happy Holidays from your United States Congress 

*Known as the “Protecting Americans from Tax Hikes (PATH) Act of 2015”

 

Ok, let’s see if we can make some sense out of the latest Congressional holiday gift courtesy of the United States Congress.

Every December, Congress has to decide if they will extend expiring provisions of the tax code. Generally, they do this for the upcoming year but this year they were a year late. On December 15th , Congress decided to extend a number of provisions (many retroactive to 2015) that impact businesses.  Some extensions are permanent, some are extended through 2019, and others have been temporarily extended through 2016.  The good news is that we have fewer unknowns in  2016 than we have dealt with in 2015.   

These are some of the items most relevant to businesses in the Napa Valley.

Item

Impact

Dates and Extension Period

Research Credit

R&D labor investments in the vineyard and cellar might be eligible for tax credits and for tax years beginning after 2015, these credits can be used against any Alternative Minimum Tax that would otherwise be due.

(Starting in 2016, certain startup small businesses can use a portion of these credits to offset FICA tax paid by employers.)

Permanent (retroactive to amounts paid or incurred after 12/31/14)

Section 179 expensing of asset purchases

 

The maximum expensed amount is set at $500,000 with a phase out starting when investments exceed 2 million per year.

Retroactively extended for 2015 and made permanent.

Real property eligible for Section 179 expensing

Leasehold improvements and certain qualified retail improvements.

Applies for tax years beginning before 2016

Qualified Leasehold Improvements and Qualified Retail Improvement Property

Depreciable over a 15 year recovery period.

 

Retroactively extended to 2015 and made permanent

Additional first year depreciation of certain fixed assets

50% bonus depreciation has been extended thru 2017, phases down to 40% in 2018, and 30% in 2019.

Extended and graduated through 2019.

Treatment of a Regulated Investment Company (RIC) as a Qualified Investment Entity

Impacts treatment of foreign investments

Permanent

Net recognized built in gain for S Corporation

5 year recognition period instead of 10 – shortens the waiting period for selling former C Corp assets to avoid built in gain recognition. Applies to S Corporations that were former C Corporations.

Permanent

Corporation Qualified Conservation Contributions

Qualified farmers or ranchers can take a deduction up to 100% of taxable income (net of other charitable contribution deductions)  for qualified conservation contributions.

Permanent

IRA Distributions by individuals over 70 ½  for charitable donations

Individuals at least 70½ years of age can exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year

Retroactively revived for 2015 and extended permanently

Work Opportunity Credit

Allows employers of certain targeted groups a credit against income tax for a portion of wages paid.

Extended through 2019

New Markets Tax Credit

Provides a credit of  5 to 6% of qualified equity investments in a community development entity (CDE) over a period of years. 

Extended through 2019