Congress passed a $1.8 billion spending bill on Dec. 18, which created six significant tax breaks for private individuals as well as businesses. We’ve summarized these developments below.
- Section 179 Deduction Permanently Increased to $500,000
For years, the deductible expense limit for machinery or equipment sat at $25,000. Congress often retroactively upped it to $500,000, often in December, when businesses could not properly take advantage of it. However, each year, the limit plummeted back to $25,000 on January 1.
Due to this quirk, businesses that needed to invest in equipment often struggled to budget or plan for big purchases, thus limiting their growth. The new tax bill changes things, making the $500,000 limit permanent. Lawmakers hope the action will promote business expansion and productivity.
- Equipment Depreciation Expenses
In addition to enjoying the new, permanent $500,000 deductible expense limit, businesses can now deprecate equipment at a rate of 50 percent through 2017. For 2018, the rate drops to 40 percent and then to 30 percent in 2019.
- Extension of Research-and-Development Tax Credit
Similar to how they handled the equipment tax credit, Congress often let the research-and-development tax credit lapse and then retroactively restored it, handicapping business owners in the process. The new legislation makes this R&D credit permanent, enabling businesses, especially startups, to plan more effectively and innovate easier.
- Shortened Time Frames for Lease Depreciations
Previously, landlords, including restaurants, needed to spread out depreciations on property improvements over 39 years. The new bill cuts that time frame dramatically, decreasing it to 15 years.
- Three Medical Taxes Delayed
The bill delays or suspends the following three taxes:
- A 2.3 percent tax on the sales of medical devices.
- The Affordable Care Act’s tax of 40 percent on expensive insurance plans. Also called the “Cadillac tax,” this tax will be delayed until 2020 to allow employers to continue to pay health insurance for employees instead of funneling money into taxes.
- A tax on health-insurance businesses. Companies had been passing the cost of this tax to consumers by charging higher premiums.
- Increased Backing of Small Business Loans via the Small Business Administration (SBA)
The SBA can back $26.5 billion in loans, up from $23.6 billion in 2014, to small businesses. With their long terms and low rates, these loans help small business owners purchase machinery, recruit employees, invest in R&D and develop new products. The higher loan limit allows the SBA to serve more companies across the nation.
Do you have questions about your year-end planning? Our attorneys at ILP can help you approach your 2016 strategically and take advantage of the benefits of this new law. Call us at (800) 827-7784 to learn more