Following many years of being deadlocked, the Protecting Americans from Tax Hike (PATH) Act was quickly passed by Congress and signed into law by President Obama. One of the act’s major achievements has been to restore predictability to taxes. The PATH Act gives more permanence to many of the year-end tax benefit extensions that have historically been granted much too late in the year to allow tax payers to plan more effectively. The legislation is comprised of the following five key rules.
Section 179 Expensing
According to Section 179 of the tax code, small businesses may immediately deduct up to $500,000 of investments. Immediately deducting expenses up front is generally viewed by most small businesses as a more favorable alternative to capitalizing and depreciating over time. The $500,000 maximum is also much more generous than the previous maximum of $25,000. In addition to making the $500,000 allowance permanent, PATH also indexes the allowance for inflation.
Bonus Depreciation
For small businesses that make capital expenditures beyond $500,000 may also qualify for bonus depreciation, which allows businesses to immediately deduct up to 50 percent of some investment costs. The PATH legislation did not make bonus depreciation permanent; however, it will be phased out through 2019. Therefore, businesses may still take advantage of it.
Research and Experimentation
Businesses that conduct research activities may qualify for a R&E tax credit, which may lower their taxes. The R&E credit has expired and been renewed at 16 times since 1981. However, under PATH, the credit will now be permanent.
Cadillac Tax Delay
Intended to fund much of the Affordable Care Act, the Cadillac tax’s 2018 start has been delayed until 2020. Many taxpayers dread the pending Cadillac tax and are hoping the delay will become permanent.
Medical Device Tax Delay
The Affordable Care Act imposes a new, controversial excise tax on medical devices. Under the PATH Act, the tax will be delayed until 2018.
Businesses that wish to learn more about how the new PATH Act will affect their taxes are encouraged to contact Gary Kaplan, CPA. Mr. Kaplan is a highly knowledgeable CPA and is available to offer tax planning and accounting support to businesses in New York, Maryland, Washington, D.C, Utah, and Florida.
