Now that the holidays and the Super Bowl are past us, it’s time to focus on the really exciting part of the year…TAXES!!! If you can manage to compose yourself and contain your excitement, there are a few pretty important tax changes coming up this year that will affect small businesses immensely. From capital depreciation to new deadlines to research and development credits, here are the seven most important tax law changes to know for filing your 2016 returns.
Section 179 – Bonus Depreciation
No, this does not mean you can give yourself a nice hefty “bonus” and somehow write it off as depreciation. The “bonus” part refers to the amount of depreciation you can write off past what would be normally allowed. Under the PATH Act of 2015, capital investments like heavy machinery, updated technology, and even HVAC units can be depreciated at up to 50% of its cost for the first year they were put into use. So if you bought a new industrial oven and began using it in February, those numbers apply to you.
That number drops to 40% in 2018 and 30% in 2019, so if you’re considering making large capital investments do it sooner rather than later. Bonus depreciation also applies to leased hardware/software, at the same rate.
Vehicle depreciation is also increased, an especially pertinent fact for small business owners or self-employed people who use their cars as a business expense. Formerly, the most you could depreciate a car was $3,160 in the first year, $3,560 for light trucks. That amount jumps to $8,000 in 2017, though it will begin to drop back down to $6,400 in 2018 and $4,800 in 2019.
New Filing Deadlines
Pay special attention here: The deadlines for filing as an S-Corp or partnership have been moved from April 15 to March 15. That’s a full month LESS than you have now. C-Corporations, however, will now have an extra month to file, as their deadlines moved from March 15 to April 15.
If your business provides health coverage, the deadline for Form 1095, the proof of insurance coverage, is now January 31.
Longer Automatic Extensions
Because congressional bills never seem to like to describe what they actually do, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 extends the automatic extension for corporate returns under Code Sec. 6081(b) from three months to six months. For C-Corporations, that extension goes to five months. This is all, of course, contingent on having made your quarterly estimated tax payments.
Tax Credits for Long-Unemployed Workers
In a move designed to get work for veterans who struggle to find consistent employment, the PATH Act offers a credit on the first $6,000 of wages paid to people who’ve been unemployed for at least 27 weeks. That credit extends to 40% of those wages this year.
More Credit for Research and Development
While companies who developed software for internal use only couldn’t claim a tax credit for its research and development, if a small business has engineers, scientists, or designated product development people on staff they can now get the research and development credit. Companies developing innovative software to be sold commercially can also claim the credit. And the credit can be taken against the Alternative Minimum Tax turnoff, and can also take the credit against payroll tax.
Essentially, this means that startups that have not been able to produce a product yet can claim a sizable tax credit, ostensibly allowing them to stay in business and innovate longer.
Previously, when a partnership got audited the individuals involved in the partnership were liable personally for any tax collection associated with the audit. Not the case anymore, as the partnership as an entity now bears the liability for taxes owed.
Solar Heating Credit
Last year saw a 30% tax credit for businesses that used solar heating and power cells. That drops to a 10% credit for units that began operation this year.
In the interest of making this post simple and easy to digest, we’ve simplified a lot of these rules so you can better understand them. That said, always consult an accountant to make sure you’re both compliant and getting the most money you can. And get all the details before filing anything.