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2016 Year-End Tax Planning Tips – Business Tip #1

Businesses should consider taking advantage of some of the accelerated deduction provisions of the PATH Act.

Section 179 Election

The PATH Act permanently set Section 179 expensing and overall investment limits and indexed them for inflation.  For 2016, those limits are $500,000 and $2.01 million, respectively.  Under the 179 election, businesses can deduct up to $500,000 of year end purchases of qualifying 179 property.

Research Credit

The research credit was made permanent and more useful to small businesses as a result of the PATH Act.

Other business incentives made permanent by the PATH Act

  • The recovery period for leasehold improvements, restaurant and retail improvement property was shortened
  • The recognition period for built-in gains tax of S corporation
  • The shareholder’s basis reduction for an S corporation’s charitable donations

Bonus Depreciation

The PATH Act extended and enhanced elective bonus depreciation for a period of five years.  Up to 50% of the cost of qualifying property with a recovery period of 20 years or less purchased and placed in service in 2016 can be deducted in 2016.  This includes certain leasehold improvements, restaurant and retail improvement property.  However, businesses can elect out of it if it wants to spread its depreciation deductions more evenly.

Planning Strategy

When comparing the possible benefits of Section 179 expensing to bonus depreciation, bear in mind that Section 179 is available for both new and used property, whereas bonus depreciation is only available for new (not used) purchases.  The Section 179 election is only available for tangible personal business property such as furniture and equipment and certain improvements or nonstructural property attached to a building.  Section 179 expensing is elected first, followed by Bonus depreciation and then current year regular depreciation.

Revised Repair Regulation Rules

In 2013, the IRS issued tangible property regulations to govern the costs to acquire, repair and improve tangible property that impact virtually all asset-based businesses.  Included in the “repair regs” is a de minimus safe harbor provision that allows businesses to annually elect to deduct costs acquired or produced subject to a per-item dollar limit so long as there is an unwritten policy in place as of the beginning of the year.  In 2016, the limit was raised from $500 to $2,500 for taxpayers without an applicable financial statement (i.e. does not issue a financial statement to third parties).

The IRS now allows a change in accounting method and provides how to obtain automatic consent to allow certain retail and restaurant establishments to treat 25% of remodel-refresh costs as capital expenditures and to currently deduct the remaining 75%.

When it comes to serving your accounting needs, no one has more experience than our team at DSJ. Call us today at 516.541.6549 or email us at to set up an appointment. We look forward to working with you!

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