On December 18, 2015, Congress passed and the president signed into law the Consolidated Appropriations Act, 2016 (CAA) and the Protecting Americans From Tax Hikes (PATH) Act of 2015, funding the government and providing a number of significant tax changes.
The following is a summary of the key areas of this law—and a few other late 2015 bills, such as the 2015 Bipartisan Budget Act—that will be followed by an analysis of what actions you may wish to take in both the long and short run as a result of this legislation.
Expired Provisions That Were Made Permanent
The deduction for state and local sales tax. This deduction benefits taxpayers in states that impose a sales tax but not an income tax.
Research credit is retroactively restored and permanently extended.
Bonus depreciation and alternative minimum tax (AMT) relief are restored (retroactively) and extended to apply to property placed in service before January 1, 2020.
Bonus depreciation is phased down after December 31, 2017—40 percent bonus depreciation for property placed in service in calendar year 2018; 30 percent for property placed in service in 2019.
The act contains a more favorable phaseout for companies in the fruit and nut business. However, I do not believe that this will apply to many in the converting businesses.
Requirements for building improvements qualifying for bonus depreciation (and AMT relief) are relaxed. This covers nonstructural, retail, and other leasehold improvements.
Higher limits on Code Sec. 179 expensing are restored and permanently extended.
Shortened S-corp built-in gains holding period permanently extended (five years generally).
Partnership interests created by gift will now be fully recognized by law. The IRS had been trying to chip away the benefits of capital-intensive family limited partnerships with some creative interpretations of the law. Congress has now put this doctrine directly into the Internal Revenue Code, so a gift of an interest is treated no differently than a purchase.
A 100 percent gain exclusion for qualified small business stock (QSBS) is retroactively restored and made permanent. If you qualify and can sell stock rather than assets, this is a good break.
Rule allowing tax-free IRA distributions of up to $100,000, if donated to charity, is made permanent.
Partnership and S-corp returns due March 15 and C-corp returns due April 15—reversing the due dates that have existed for more than 30 years.
IRS continues to push for more computer matching (all applicable for next year).
Increase in information return penalties.
Increase in payee statement penalties.
Filing due date is accelerated to January 31 for employee wage information and nonemployee compensation.
IRS Commissioner must ensure IRS employees are familiar with, and respect, taxpayer rights—a kinder, gentler IRS mandated by Congress!
What Should You Do as a Result of All This?
Revisit your fourth quarter estimated tax payments and factor in the potential effect of the Section 179 deduction, the 50 percent bonus depreciation, the research credit, the sales tax deduction, and any of the other provisions that pertain to you.
Think about ordering the “big ticket items” on your machinery wish list sooner rather than later, since the 50 percent bonus depreciation starts phasing down for equipment placed in service after December 31, 2017.
Continue to have your designers track the time they spend and the materials they use on the design of custom boxes, so you have good backup on which to base your claim for the research credit.
Don’t be afraid of making that annual gift of your capital-intensive family partnership.
Continue to make charitable gifts from your IRA.
Be mindful of increased penalties for information returns. Make sure you get properly filled-out W-4s, I-9s, and W-9s from all employees and other payees.