2016 tax changes: Recap for business owners

As the end of the year approaches, we wanted to remind you about some of the legislative changes of 2016 that can affect business owners, such as tax credits, depreciation changes, and new deadlines. If you haven’t already done so, you might think about how these changes could affect your business and which year-end tax planning strategies might be right for you.

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Business Tax Changes

FREE ACCOUNTABLE SEMINAR: UNDERSTANDING FINANCIAL STATEMENTS AND BUDGETS. During this free seminar, we will discuss financial statements and budgets and give helpful tips for using QuickBooks® to generate these reports.

YEAR-END TAX PLANNING FOR INDIVIDUALS. It’s that time of the year again – time to start thinking about the upcoming tax season. You have a few different strategies available to reduce your current year income tax burden. You might be able to: defer your income to be recognized in a later year; accelerate your deductions to be recognized in the current year; or apply for tax credits.

REMINDER: 2015 LAW CHANGES TAX RETURN DATES FOR C CORPORATIONS, PARTNERSHIPS, AND MORE. A law signed by President Obama last year changed the due dates for certain 2016 tax returns that will be filed in 2017. Entities affected by the new deadlines include partnerships and C corporations, as well as those that file FinCEN Form 114, Report of Foreign Bank and Financial Accounts, and several other Internal Revenue Service information returns.

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Revised deadlines

The regular and/or extended due dates for partnership, C corporation, and Trust returns have changed for the 2016 tax year. In addition, the W-2 filing deadline and the 1099-MISC filing deadline for those with information in Box 7 have both been moved up to January 31 each year.

Affordable Care Act reporting requirements and incentives

The Affordable Care Act (ACA) now requires businesses to file Forms 1094-C and 1095-C with the Internal Revenue Service. Unless you qualify as a small employer, these forms will need to be filed and copies delivered to your employees timely so they can be utilized on your employees’ individual income tax returns. The good news is you have an extra 30 days to file Forms 1095-B and 1095-C next year – the IRS extended the deadline from January 31 to March 2.

Some small businesses are afforded health care tax credits to help them take on the new financial burden of the ACA. Visit the IRS website for more information.

Department of Labor overtime rules

The Department of Labor’s new overtime rules will go into effect on December 1 this year. Many businesses are searching for new or improved timekeeping software to help them comply with this law. (Editor’s note: A federal judge issued a ruling on November 22 suspending implementation of these regulations. Please see our Client Alert for more information.)

PATH Act “extenders” bill

The PATH Act of 2015 extended several tax provisions for businesses. If you haven’t taken advantage of these provisions, you may consider doing so before the end of 2016. Some of these provisions are listed below.

BONUS DEPRECIATION

Bonus depreciation is being phased out over the next five years. Tax year 2017 is the last year 50% bonus depreciation will be allowed, and the benefit will be phased out completely by 2020. This will be something a business should consider when budgeting for next year’s equipment expenditures.

DEPRECIATION ON QUALIFIED IMPROVEMENT PROPERTY

If your business is considering making major renovations to your building, you have additional depreciation incentive options available to you thanks to the PATH Act. This new rule allows business owners to use bonus depreciation on certain building improvements that were previously ineligible for accelerated depreciation. But remember, bonus depreciation is being phased out – take advantage of this new rule as soon as possible.

SECTION 179 DEPRECIATION

The PATH Act permanently extended the Section 179 expensing limitation and allows for up to $500,000 of equipment purchases to be fully depreciated in the year of purchase for businesses with qualifying equipment purchases of less than $2 million.

WORK OPPORTUNITY TAX CREDIT

The Federal Work Opportunity Tax Credit (WOTC) has been around since 1996, and it has been up for consideration almost every year since then. Because the PATH Act guaranteed this credit through 2019, it might now be worthy of your consideration. If you are concerned about the unique filing requirements, ask your payroll provider if WOTC compliance assistance is a service they offer.

RESEARCH AND DEVELOPMENT TAX CREDIT

With the PATH Act, the Research and Development Tax Credit is now available to be used against some payroll taxes and Alternative Minimum Tax liabilities for certain small and/or new businesses.

Safe harbor expensing threshold

As of January 1, 2016, the de minimis safe harbor for expensing equipment purchases increased from $500 to $2,500. This pro-taxpayer provision may entice you to upgrade some of your business equipment or office furniture by allowing you to expense the full cost in the year of purchase.

Keep an eye on state and local legislative changes

Often, companies tend to consider only the Federal income tax consequences of a business decision. Luckily, WK stays abreast of the local legislative process, and we send e-mail alerts about important changes that might affect our clients. Check your e-mail for some of these alerts. Examples of recent state and local legislative changes are:

Other considerations

Each item listed above covers a recent legislative change that can impact your year-end and future plans. There are other planning strategies that more or less stay the same from year to year, but are nonetheless worthy of your consideration as 2016 comes to a close. Some of these general recommendations are listed below.

DEFER INCOME TO 2016

A cash-method business could delay invoices so that payments are not received until 2017.
An accrual-method business could hold off on providing goods or services and product shipments to customers until after January 1.

ACCELERATE & MAXIMIZE DEDUCTIONS INTO 2016

If repairs are needed for vehicles or equipment, have them done before year-end.
Pay bonuses by year-end for cash basis organizations; those on accrual basis have 2 ½ months to pay bonuses and still deduct them in 2016 (with restrictions).

OTHER DEDUCTIONS

Businesses that have income from domestic manufacturing and other domestic production activities can take advantage of Section 199 domestic productions activities deduction. The deduction equals 9% of the smaller of:

the taxpayer’s “qualified production activities income” (QPAI) for the tax year, or
the taxpayer’s taxable income (modified adjusted gross income, for individual taxpayers), without regard to the Section 199 deduction, for the tax year.

If you would like to discuss your business’s short- or long-term tax planning strategies, please contact your WK advisor at (573) 442-6171 or (573) 635-6196.

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2016 tax changes: Recap for business owners