2016 Key Tax Strategies
Here are a few key tax updates for small business owners to keep in mind, not only for annual federal tax filings, but also to improve business and lower costs going forward.
Section 179 Deduction
Any small business can now deduct up to $500,000 in equipment expenses per year. Qualifying equipment includes machinery, appliances, office equipment, printing presses, leasing equipment, signage, livestock, qualified real property, and computer software. Credit is subject to the adjusted business income, and is limited to a maximum of 2 million in qualified expenses before decreasing your Section 179 deduction. If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct.
Research & Development (R&D) Tax Credit
At the end of 2015, Congress enacted and the president signed into law a permanent Research & Development credit, giving manufacturers some expanded valuable benefits. Remember, you don’t have to be an research company to qualify for the tax credit, any business entity can qualify! This research must be undertaken for discovering new information, technological in nature, that is intended for use in developing new or improved processes, performance, or products. Any expenses incurred directly for R&D including but not limited to employee education, labor, materials, and wages, may be eligible for this credit.
Domestic Production Activities Deduction (DPAD)
This provision was enacted to encourage manufacturers to keep production activities in the United States. It’s a fairly complicated calculation to determine which activities that quality, but it can result in savings of 9% on adjusted gross income.
Federal Work Opportunity Tax Credit (WOTC)
If your business employees individuals who are members of “targeted groups,” such as veterans and federal assistance recipients, you need to take advantage of this credit. against “federal income taxes for up to 40% of the first-year wages paid to those employees, up to $9,600 per qualifying employee,” explains Plante Moran. “A recent change expanded the list of targeted groups to include those unemployed for longer than 27 weeks.” Many companies hire these individuals without realizing that they’re part of a targeted group, and Plante Moran suggests that you may want to incorporate the pre-screening forms into your hiring process to ensure you can take advantage of this tax credit.
Employer Wage Credit
This credit is 20% of up to $20,000 of differential wage payments paid to each qualified employee during the tax year. Applicable to employees who are active duty members or the uniformed services. Credit has been extended to cover eligible differential wage payments made after 2014. The credit for employer differential wage payments is part of the general business credit.
The information provided in this blog post is for informational purposes only and not for the purpose of providing accounting, legal, or tax advice. All information is by nature subject to revision and may not be the most current information available.
PATH – Division Q – Protecting American from Tax Hikes Act of 2015, Rules Committee Print 114-40, Text Of House Amendment #2 To The Senate Amendment To H.R. 2029, Military Construction And Veterans Affairs And Related Agencies Appropriations Act, 2016 – December 15, 2015
Form 8932, Department of Treasury, Internal Revenue Service, Rev. December 2015