By GREGORY ZELLER //
Small businesses engaged in research and development are among those unwrapping a shiny present from the federal government, in the form of dozens of business-tax provisions either extended or made permanent by the Protecting Americans From Tax Hikes Act of 2015.
Congress passed the budgeting act, also known as the “extender bill,” on Dec. 18 and President Barack Obama signed it into law the same day.
The fed could actually be accused of re-gifting here: Most of the act’s business- and working family-friendly provisions were already on the books in one form or another. But virtually all of those tax credits and other benefits expired annually, requiring a re-upping by Congress and leaving families and small business owners in a lurch while waiting to see if their favorite credit would be back. And if so, at what level.
Now, notes tax partner Larry Lucarelli of Hauppauge-based CPA firm AVZ, many of those credits have been made permanent, or at least extended for a comfortable minimum of five years.
“Basically, we’re talking about things that have been getting extended year after year for the past five years or so,” Lucarelli told Innovate LI. “These are nothing new, but a lot of them have been made permanent, so people and businesses don’t have to wait it out to be sure on their tax planning.”
While the bipartisan act includes provisions important to working-class families – expiring tax credits covering college tuition and charitable donations, among others, are now permanent – the extender bill contains several tax breaks critical to small business owners, according to Lucarelli.
Right at the top, Lucarelli said, is a reworking of the Section 179 deductions, specifically regarding depreciation. Previously, under the annually expiring tax credit, businesses were allowed to write off up to $500,000 in new or used equipment purchases if their total equipment expenditures didn’t exceed $2 million for the year.
The write-off was reduced to $25,000 for 2015. The PATH Act not only increases eligibility back to $500,000, it makes Section 179 deductions permanent.
“That’s one we waited for every year, and usually didn’t find out until January whether we could deduct from the prior year,” said Lucarelli, whose firm provides accounting, auditing and tax services to a variety of businesses and industries. “And last year, we found out it was reduced to $25,000.”
Another positive change for small business owners can be found in the “bonus depreciation” provision, which exists in addition to the Section 179 deductions and has been extended for five years. According to Lucarelli, previous versions allowed business owners to deduct up to 50 percent of the cost of new equipment only, with no spending limits.
While the new version is extended through 2019, Lucarelli added, it’s scheduled to fade out, with a 50 percent write-off through 2017, a 40 percent write-off in 2018 and 30 percent in 2019.
Also of particular interest to Long Island innovation scene is a federal research and development tax credit, another yearly renewal made permanent by the PATH Act. Available to companies engaged in the development of new pharmaceuticals or software, new manufacturing or construction processes or other qualified R&D-related endeavors, the provision offers a 20 percent tax credit for all research-related expenses.
“Every year, we know this one is going to pass,” Lucarelli noted. “But a lot of manufacturers have to play the wait-and-see game.”
Another upgrade to the R&D credit: Starting in 2016, qualified private businesses with under $50 million in annual revenues can apply it against their Alternative Minimum Tax.
“They’ve removed that floor for qualified small businesses,” Lucarelli noted. “A lot of times, they really limited those R&D credits, but that’s not the case anymore.”
All told, the nearly 50 personal and business provisions reinstated or revamped by the PATH Act should prove to be significant economic boosters. Businesses had a fairly good idea that most would be coming every year anyway, but with several made permanent or at least extended for several years, businesses should be able to plan their annual budgets more confidently and more accurately, according to Lucarelli.
“Many times, businesses are just not confident making an investment in new equipment or other expenses if they don’t know if they’re going to get the deduction this year,” the AVZ & Co. tax partner said. “And a lot of the time, they’ll wait on a purchase because it’s too hard to plan around it. Now they won’t have to wait.”