Tax Credit

How to Get Full Value from the PATH Act Credits This Tax Season

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According to the IRS, the Protecting Americans from Tax Hikes (PATH) Act provides 20+ provisions designed to offer individuals, families and business owners additional credits, deductions and exclusions. It also includes provisions to guard against the possibility of tax fraud.

As the new tax season begins, McGuire Sponsel wants to remind each of our valued clients and partners of the potential tax advantages of the PATH act.

R&D Tax Credit: 2 Options for Business Owners

For example, the PATH Act provides for two methods of claiming the R&D Tax Credit.

Method 1.

The first method applies to small businesses that have grossed less than $50 million in the prior 36 month (3-year) period. Here, the R&D Tax Credit can be applied against the Alternative Minimum Tax (AMT) payment.

Method 2.

The second method permits startup companies to use the R&D Tax Credit against a portion of required FICA tax payments (specifically, the OASDI, or Old Age, Survivors and Disability Insurance). For the purposes of R&D Tax Credit eligibility here, a “startup company” is one that has been earning revenue for five years or less prior to this tax year and has accrued $5 million or less per year in gross receipts.

New Asset Classification: “Qualified Improvement Property”

For businesses that have placed assets in service at any time starting on January 1, 2016 through the year 2019, you are now eligible to take a bonus depreciation over the 39-year asset life.

NOTE: This classification is limited to assets dedicated to internal renovations, sans internal structural framework modifications.

As well, assets that qualify can take the bonus depreciation as follows:

  • 2016-2017: 50 percent.
  • 2018: 40 percent.
  • 2019: 30 percent.

NOTE: For owner-occupied buildings, this new bonus depreciation schedule can potentially provide for significant tax savings via cost segregation (particularly for assets exceeding $200,000).

2 Additional Important Tax Provisions

The Protecting Americans from Tax Hikes Act offers two additional potentially valuable tax provisions.

The first provision raises the expensing limits for Section 179-D to $500,000, with an eventual phase-out goal of $2 million.

The second provision eliminates the previous cap of $250,000 for qualified real property and provides indexes for inflation.

When meeting with clients, be sure to mention these valuable PATH Act provisions. For additional information, please contact McGuire Sponsel.