US businesses preparing to file their 2016 income tax returns should be aware of the changes to various requirements and tax breaks that may apply to their upcoming filings. As in most election years, there were no dramatic income tax laws passed in 2016. However, several provisions of the Protecting Americans from Tax Hikes Act (PATH Act), passed in 2015, will apply to 2016 returns, and the IRS has also issued guidance that will have an impact on 2016 tax filings. This article will address the tax changes that still affect 2016 tax returns.
By Zack Leder and Ben Bowers
The legislative change that will affect almost all taxpayers is the new tax return due date schedule in the PATH Act. The initial due date for calendar-year partnerships is now a month earlier, moving from April 15th to March 15th (the extended due date of September 15th remains the same). Both the initial and extended due dates for C corporations have been pushed back by a month, to April 15th and October 15th, respectively, for calendar-year taxpayers. For taxpayers with interests in foreign financial accounts, the date for reporting these to FinCEN has been moved from June 30th to align with the individual tax return due date of April 15th (October 15th, if extended). Finally, employers are now required to submit their copies of Forms W-2 and 1099-MISC to the IRS by January 31st, the same date that they must be furnished to employees and independent contractors. There are no changes for S corporation or individual tax return due dates.
Changes to Tax Breaks
The PATH Act made permanent the Code Sec. 179 deduction for personal property and certain qualifying real property. For 2016, the maximum immediate expensing deduction is $500,000, and will begin to phase out for taxpayers placing over $2,010,000 of Sec. 179 assets in service during the year. The $250,000 cap on qualifying real property applicable in prior years no longer applies in 2016. Bonus depreciation, which allows a 50% for certain new business property, was extended through 2019, although the current deduction percentage is set to decline beginning in 2018.
The tax credit for research and development expenditures was made permanent and more beneficial to certain small businesses. Beginning in 2016, qualifying businesses can use the credit to offset alternative minimum tax, and certain businesses may also elect to apply the credit against the 6.2% payroll tax on employee wages. The work opportunity credit was extended through 2019 and, beginning in 2016, applies to wages paid to eligible long-term unemployment recipients in addition to the targeted groups already included.
The tangible property repair regulations published by the IRS in 2014, which apply to almost all taxpayers with tangible asset-based businesses, continue to be revised and refreshed. Effective for 2016, the de minimis safe harbor for deducting the cost of materials and supplies or a unit of property has been increased from $500 to $2,500 per item for taxpayers without an applicable financial statement. The IRS also supplemented the repair regulations to allow a retail or restaurant establishment to treat 25% of qualified remodel-refresh costs as capital expenditures and 75% as currently deductible repair expenses. Many taxpayers have not focused on the opportunity for expensing a significant portion of their annual “capital” budgets. Attention to detail in this area could increase immediate tax savings.
Affordable Care Act
Although the incoming administration has promised to repeal the Affordable Care Act, its provisions are still in effect for the 2016 tax year until legislation or regulations dictate otherwise. Businesses with more than 50 full-time employees must generally furnish information returns to employees regarding their health care coverage, for which the IRS has extended the deadline to March 2nd, 2017, for health coverage offered in 2016. These large employers are also subject to a shared responsibility penalty if they do not offer a minimum level of health insurance coverage to their full-time employees. At least 95% of employees must be offered minimum coverage in 2016 (up from 70% in 2015), and the requirement now applies to employees’ dependents as well.
Expiring Tax Provisions
Since Congress did not enact any additional significant tax legislation in 2016, several provisions set to expire on December 31st, 2016 were not renewed. 2016 will be the final year that businesses can take advantage of the following tax breaks:
- Deduction for qualified film and television production expenses
- Deduction for energy-efficient commercial buildings
- Shorter recovery periods for certain solar and wind energy property and motorsports entertainment complexes
- Additional depreciation for second-generation biofuel plant property
- Election to expense 50% of mine safety equipment
As stated above, businesses of all sizes are at risk and will be affected by the changes to 2016 tax filings. Additionally, many of these provisions will apply to future tax years, which is why businesses need to be aware of the updated regulations and changes. These updates should be incorporated into a business’s comprehensive plan for reducing taxes and complying with all applicable requirements.
Zack Leder is a Partner with Bennett Thrasher LLP where he has experience in taxation, M&A activity and strategic planning and business transition planning. He may be reached at firstname.lastname@example.org.
Ben Bowers is an associate with Bennett Thrasher LLP where he focuses his practice in the Tax Department. He may be reached at email@example.com.