Monthly Archives: February 2016

Your Business May Benefit from these Important Tax Extensions

TJCby Anthony J. Constantine, CPA, Partner, Ciuni & Panichi, Inc.

The Protecting Americans from Tax Hikes (PATH) Act of 2015 extended, and in a few cases made permanent, many favorable tax provisions for capital intensive businesses, real estate companies, and construction contractors.

The obvious change that we are thankful for is the now permanently enhanced Section 179 expensing.  This provision allows a trade or business to immediately expense up to $500,000 of equipment per year.  There are a couple limitations, most notably you must have taxable income and you are limited if you have over $2,000,000 in acquisitions during the year.  This provision has been extended each December for the past few years making planning an expensive gamble.  Now the provision is permanent. CFO’s can look ahead and plan capital expenditures more prudently.

Over the past fifteen years, in addition to Section 179, taxpayers have been able to take advantage of a provision under Section 168(k) known as bonus depreciation that allows taxpayers to immediately expense a portion of their capital purchases in the first year.  The IRS extended the provision at 50 percent through 2017, 40 percent in 2018, and 30 percent in 2019.  The provision goes away in 2020.  Bonus depreciation is different from Sec 179 expensing in that:

  • No taxable income limitation
  • Not limited to tangible personal property
  • No investment limitation
  • Original use must begin with the taxpayer

Real estate lessors and lessees will benefit from the bonus depreciation available for property improvements considered Qualified Tenant Improvements.  Under the provision the depreciable life for property improvements are reduced to 15 years, much more favorable than the previous 39 years.  In order to be considered “qualifying” the improvement must meet the following criteria:

  • Made under or pursuant to a lease (related party leases do not count)
  • Made to a building that has been in service for at least three years
  • Does not include enlargements, elevators, escalators, and internal structural framework

The PATH Act modified the definition of qualifying improvement for purposes of bonus depreciation, effective for tax years beginning in 2016.  The modified category, Qualified Improvement Property, expands the property eligible for bonus depreciation.  Now these new rules provide that any improvement to an interior portion of a building which is nonresidential real property and placed in service after the date the building was first placed in service will qualify for bonus depreciation.  Exceptions include enlargements, elevators/escalators, and internal structural framework.

Basically, the provision allows for bonus depreciation on any interior improvement (subject to a few restrictions).  This means that even if the property doesn’t qualify for a 15 year life, it still may be eligible for bonus depreciation if purchased and placed in service in 2016 or later.

Example:  A manufacturer decides to renovate the interior of his plant.  The renovations will qualify for bonus depreciation as long as they are interior improvements that are not enlargements, elevators/escalators, and internal structural framework.  The remaining basis will be depreciated over 39 years.

Tax rules are complicated.  Your CPA is your best resource to take full advantage of tax benefits impacting your business.  Ciuni & Panichi, Inc. welcomes the opportunity to help your business prosper.  To learn more, contact Tony Constantine, CPA, Partner in the Real Estate and Construction Group at 216-765-6925 or tconstantine@cp-advisors.com.

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© 2015

February Tax Tips

Feb Tax TipsFile early to avoid tax identity theft

If you’re like many Americans, you may not start thinking about filing your tax return until the April 15 deadline (this year, April 18) is just a few weeks — or perhaps even just a few days — away. But there’s another date you should keep in mind: January 19. That’s the date the IRS began accepting 2015 returns, and filing as close to that date as possible could protect you from tax identity theft.

How filing early helps
In this increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the thief who’s filing the duplicate return, not you.

Another key date
Of course you need to have your W-2s and 1099s to file. So another key date to be aware of is February 1 — the deadline for employers to issue 2015 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2015 interest, dividend or reportable miscellaneous income payments.

An added bonus
Let us know if you have questions about tax identity theft or would like help filing your 2015 return early. An added bonus of filing early, if you’ll be getting a refund, is enjoying that refund sooner.

Extension means businesses can take bonus depreciation on their 2015 returns – but should they?

Bonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended 50% bonus depreciation through 2017.

The break had expired December 31, 2014, for most assets. So the PATH Act may give you a tax-saving opportunity for 2015 you wouldn’t otherwise have had. Many businesses will benefit from claiming this break on their 2015 returns. But you might save more tax in the long run if you forgo it.

What assets are eligible
For 2015, new tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified leasehold-improvement property.

Acquiring the property in 2015 isn’t enough, however. You must also have placed the property in service in 2015.

Should you or shouldn’t you?
If you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation (to the extent you’ve exhausted any Section 179 expensing available to you) is likely a good tax strategy. It will defer tax, which generally is beneficial.

But if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax for 2015, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re in a higher bracket.

We can help
If you’re unsure whether you should take bonus depreciation on your 2015 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact   Jim Komos at jkomos@cp-advisors.com or 216.831.7171 for more information on any of our topics or to get expert tax assistance.

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© 2016