Boost for business plans

The lack of certainty in our tax laws often adds to the complexity of making sound, long-range business plans. The Protecting Americans from Tax Hikes Act of 2015, which President Barack Obama signed into law in December, brings increased certainty to corporate taxes, thus aiding business planning for many companies.

Several prominent business provisions that had expired at the end of 2014 not only were reinstated, but were also extended permanently. And some provisions have been significantly enhanced from their previous incarnations.

n R&D Tax Credit. The research and development tax credit encourages domestic research and experimentation by providing a tax credit for amounts incurred for qualified research expenses. Originally enacted in 1981, the R&D tax credit has been extended by Congress more than a dozen times. PATHA finally extends the R&D tax credit permanently, which should help empower companies to make long-term commitments to research activities.

Not only has the R&D tax credit been permanently extended, it has also been enhanced. Beginning in 2016 tax years, eligible small businesses (those with average annual gross receipts of $50 million or less) may claim the R&D tax credit against alternative minimum tax liabilities, expanding the benefits first introduced in 2010. This is especially important to individuals who are partners or shareholders in S corporations that qualify as eligible small businesses, as they also benefit from the favorable AMT treatment.

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Also beginning with 2016 tax years, startups with gross receipts of less than $5 million may elect to claim the R&D tax credit against payroll tax liabilities.

n Increased Section 179 Expensing Election. The Section 179 immediate expensing election had plummeted from $500,000 in 2014 to $25,000 in 2015. With PATHA, businesses with adequate taxable income can immediately deduct in 2015 and all subsequent tax years up to $500,000 of qualified tangible property (including off-the-shelf computer software). The Section 179 deduction begins to phase out when total qualified purchases for the year exceed $2 million.

Several enhancements to the Section 179 deduction take effect in 2016:

n The $250,000 cap on qualified real property (consisting of qualified leasehold improvements, qualified restaurant property and qualified retail improvement property) no longer applies.

n Air conditioning and heating units will be eligible property.

The $500,000 and $2 million limits both are indexed for inflation.

Other permanently extended business provisions include:

n One hundred percent exclusion of gain from the sale of qualified small-business stock held by noncorporate taxpayers for more than five years, and the gain will no longer be treated as an AMT preference item.

n Reduction of the recognition period for built-in gains of S corporations from 10 to five years.

n Basis adjustment to stock of S corporations making charitable contributions of appreciated property.

n Enhanced charitable deduction for contributions of food inventory and subpart F exception for active financing income.

Next week, the second part of this two-part column will discuss other business and energy provisions made permanent or extended under PATHA. •

Michael Corrente is a managing director in the Tax Group at CBIZ Tofias, which has offices nationwide, including Providence and Boston.

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