As tax season gets into full swing, McGuire Sponsel wanted to take a moment to remind our partners and clients that this is the time to take advantage of the opportunities created by the Protecting Americans from Tax Hikes (PATH) Act. While the PATH Act has been a common topic of discussion among CPAs, there are many resulting tax provisions that are worth taking a closer look.
Under the PATH Act there are two additional ways clients can utilize the R&D Tax Credit. Small businesses with tax years beginning after 12/31/2015 can now claim the R&D Tax Credit against alternative minimum tax (AMT). This provision allows eligible small businesses with average annual gross receipts of less than $50 million over the three-year period prior to the current tax year to claim the R&D Tax Credit. Additionally, start-up companies can apply the R&D Tax Credit against the employer’s portion of the Old Age, Survivors and Disability Insurance (OASDI) part of FICA taxes. Start-up companies are defined as businesses earning revenue for no more than five years preceding the current tax year and having $5 million or less in annual gross receipts.
The PATH Act also created a new asset classification, “Qualified Improvement Property” for assets placed in service after Dec. 31, 2015, through 2019. The classification is limited to internal renovations and cannot include any internal structural framework. Property that qualifies for the new asset class is subject to bonus depreciation and will have a 39-year asset life. Along with this new creation, bonus depreciation was extended through 2019 with the following rates; 50 percent for 2016-2017, 40 percent for 2018, and 30 percent for 2019. This is a significant tax saving strategy for owner occupied buildings. Cost Segregation should be discussed for any internal renovation that exceeds $200,000.
The PATH Act provisions should provide many opportunities for taxpayers. When meeting with clients it is important to discuss how these changes can affect benefit. If you have questions on how to maximize savings, please contact McGuire Sponsel to discuss your client’s specific situation.