Wednesday, December 30, 2015

Section 179 details

Section 179 at a Glance for 2015 (updated for the PATH Act of 2015)
2015 Deduction Limit = $500,000
This deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only good for 2015, and the equipment must be financed/purchased and put into service by the end of the day, 12/31/2015.
2015 Spending Cap on equipment purchases = $2,000,000 
This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true "small business tax incentive".
Bonus Depreciation: 50% for 2015
Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached. Note: Bonus Depreciation is available for new equipment only.
The above is an overall, "simplified" view of the Section 179 Deduction for 2015. For more details on limits and qualifying equipment, as well as Section 179 Qualified Financing, please read this entire website carefully. We will also make sure to update this page if the limits change.
Here is an updated example of Section 179 at work during this 2015 tax year after the recent passage of the PATH Act of 2015:
What is the Section 179 Deduction?
Most people think the Section 179 deduction is some mysterious or complicated tax code. It really isn't, as you will see below.
Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It's an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.
Several years ago, Section 179 was often referred to as the "SUV Tax Loophole" or the "Hummer Deduction" because many businesses have used this tax code to write-off the purchase of qualifying vehicles at the time (like SUV's and Hummers). But, that particular benefit of Section 179 has been severely reduced in recent years, see 'Vehicles & Section 179' for current limits on business vehicles.
Today, Section 179 is one of the few incentives included in any of the recent Stimulus Bills that actually helps small businesses. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for small businesses - and millions of small businesses are actually taking action and getting real benefits.
Essentially, Section 179 works like this:
When your business buys certain items of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example).
Now, while it's true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.
In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting over the next few years. That's the whole purpose behind Section 179 - to motivate the American economy (and your business) to move in a positive direction. For most small businesses, the entire cost can be written-off on the 2015 tax return (up to $500,000).
Limits of Section 179
Section 179 does come with limits - there are caps to the total amount written off ($500,000 for 2015), and limits to the total amount of the equipment purchased ($2,000,000 in 2015). The deduction begins to phase out dollar-for-dollar after $2,000,000 is spent by a given business, so this makes it a true small and medium-sized business deduction.
Who Qualifies for Section 179?
All businesses that purchase, finance, and/or lease less than $2,000,000 in new or used business equipment during tax year 2015 should qualify for the Section 179 Deduction.
Most tangible goods including "off-the-shelf" software and business-use vehicles (restrictions apply) qualify for the Section 179 Deduction. For basic guidelines on what property is covered under the Section 179 tax code, please refer to this list of qualifying equipment. Also, to qualify for the Section 179 Deduction, the equipment and/or software purchased or financed must be placed into service between January 1, 2015 and December 31, 2015.
The deduction begins to phase out if more than $2,000,000 of equipment is purchased - in fact, the deduction decreases on a dollar for dollar scale after that, making Section 179 a deduction specifically for small and medium-sized businesses.
What's the difference between Section 179 and Bonus Depreciation?
Bonus depreciation is offered some years, and some years it isn't. Right now in 2015, it's being offered at 50%.
The most important difference is both new and used equipment qualify for the Section 179 Deduction (as long as the used equipment is "new to you"), while Bonus Depreciation covers new equipment only.
Bonus Depreciation is useful to very large businesses spending more than the Section 179 Spending Cap (currently $2,000,000) on new capital equipment. Also, businesses with a net loss are still qualified to deduct some of the cost of new equipment and carry-forward the loss.
When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation - unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.

Leasehold Improvements, Restaraunt and Retail property 

You can elect to treat certain qualified real property you placed in service as section 179 property for tax years tax years beginning before 2015. If this election is made, the term “section 179 property” will include any qualified real property that is:
  • Qualified leasehold improvement property,
  • Qualified restaurant property, or
  • Qualified retail improvement property.
The maximum section 179 expense deduction that can be elected for qualified section 179 real property is $250,000 of the maximum section 179 deduction of $500,000 for tax years beginning in 2014. For more information, see Special rules for qualified section 179 real property, later. Also, see Election for certain qualified section 179 real property, later, for information on how to make this election.
Qualified leasehold improvement property.   Generally, this is any improvement (placed in service before January 1, 2015) to an interior portion of a building that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met.
  In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor’s death or in any of the following types of transactions.
  1. A transaction to which section 381(a) applies,
  2. A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business,
  3. A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or
  4. Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor’s or distributor’s basis in the property. Examples include the following.
    1. A complete liquidation of a subsidiary.
    2. A transfer to a corporation controlled by the transferor.
    3. An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization.
Qualified restaurant property.   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2015. Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals.
Qualified restaurant property.   Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service after December 31, 2008, and before January 1, 2015. Also, more than 50% of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals.
Section 179's "More Than 50 Percent Business-Use" Requirement
The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.

Thanks to the group for delivering this information so concisely!

Tuesday, December 22, 2015

1095-B forms as well as 1095-C-Why am I getting these form???

Eight Facts about New ACA Information Statements
Many individuals will receive new ACA information statements for the first time in 2016:
Here are eight facts about these forms:
  • While the information on these forms may help you complete your tax return, they are not needed to file. You can file your federal tax return even if you have not received one of these statements.
  • Form 1095-B, Health Coverage, is used by coverage providers to report certain information to the IRS and to taxpayers about individuals who are covered by minimum essential coverage and therefore aren't liable for the individual shared responsibility payment.
  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage is used by employers with 50 or more full-time employees, including full-time equivalent employees, in the previous year use, to report the information required about offers of health coverage and enrollment in health coverage for their employees. 
  • Form 1095-C is also used by employers that offer employer-sponsored self-insured coverage to report information to the IRS and to employees about individuals who have minimum essential coverage under the employer plan and therefore are not liable for the individual shared responsibility payment for the months that they are covered under the plan.
  • Individuals who worked for multiple employers that are required to file Form 1095-C may receive a Form 1095-C from each employer.
  • The Form 1095-B and 1095-C sent to you may include only the last four digits of your social security number or taxpayer identification number, replacing the first five digits with asterisks or Xs.
  • In general, 1095-B and 1095-C must be sent on paper by mail or hand delivered, unless you consent to receive the statement in an electronic format.
  • Health coverage providers should furnish a copy of Form 1095-B, to you if you are identified as the “responsible individual.”

Guidance regarding the health coverage tax credit

Notice 2016-02 provides guidance regarding the health coverage tax credit (HCTC) under section 35 of the Internal Revenue Code, as modified by the Trade Preferences Extension Act of 2015, Pub. L. 114-27 (June 29, 2015).  This notice provides information on who may claim the HCTC, the amount of the HCTC, and the procedures to claim the HCTC for tax years 2014 and 2015.  This notice also provides guidance for taxpayers eligible to claim the HCTC who enrolled in a qualified health plan offered through a Health Insurance Marketplace in tax years 2014 or 2015, and who claimed or are eligible to claim the premium tax credit under section 36B.
Notice 2016-02 will be in IRB 2016-02, dated January 11, 2016.

Friday, December 18, 2015

No more annual Section 179 "wait and see". 

The Senate this morning approved a bill that permanently enacts a number of tax provisions that expired at the end of 2014. Other provisions were extended for shorter periods. The House approved it yesterday, so it now goes to the President for signature. The White House has already announced its support for the bill. 

Key provisions to be enacted permanently, retroactive to the beginning of 2015, include, among others:

-The $500,000 Section 179 deduction limit

-The five-year “recognition period” for built-in gains taxes for C corporations electing to be S corporations.

-The ability of IRAs of taxpayers reaching age 70 1/2 to make $100,000 annual charitable contributions that will not be included in the IRA holders income.

-The 100% exclusion for gains on certain original issue C corporation stock held for five years.

-The research credit.

-The alternative deduction for state and local sales taxes.

Other provisions to be made permanent include special breaks for conservation easements and the above-the-line deduction for out-of-pocket educator expenses.

50% bonus depreciation is to be extended from the beginning of 2015 through 2019, along with the Work Opportunity Tax Credit.

To get the Democratic leadership to sign off on the deal, Republican negotiators agreed to make permanent the child tax credit, the enhanced earned income tax credit, and the “American Opportunity Tax Credit” for college costs.

At least 30 other provisions are to be extended through 2016. The credits for biodiesel, renewable diesel, wind energy and residential solar are among these, along with the exclusion for qualified mortgage forgiveness and the above-the-line deduction for qualified college costs. These shorter-lived extenders also include special interest confections such as the 7-year depreciable life for speedways and special film expensing rules. 

There’s more than extenders here. This thing has 233 pages of stuff, much of which has nothing to do with extenders. A few of the major items I note:

-Acceleration of the deadline for filing W-2s with the government to January 31, from the current February 28 deadline for paper copies and March 31 for electronic filers. This is to make it easier to match refund claims to W-2s before refunds are issued. This will be effective for W-2s issued for 2016 wages.

-Allowing the purchase of computers for students as a qualified Section 529 plan expenditure, effective for 2015.

-A new charitable deduction for contributions to “agricultural research organizations.”

-New restrictions on the ability to qualify as a tax-exempt small insurance company.

-A moratorium on the ACA medical device tax.

The annual extenders frenzy is bad tax policy. Now that the most important "temporary" provisions are not so temporary, maybe Congress will take a harder look at some of the special-interest deals remaining in the list of regularly-resurrected provisions.

54 cents. 

Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
  • 14 cents per mile driven in service of charitable organizations
The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.
Gas has come down.

Thanks to Joe Kristanson with Roth & Co CPA's for much of the tax info above.

Thursday, December 17, 2015

2016 Standard Mileage Rates

The rates seem to reflect a lowering of gas prices.  However, the cost of vehicles continues to climb and I think these standard rates miss that point.

The standard mileage rate for transportation or travel expenses is 54 cents per mile for all miles of business use (business standard mileage rate). See section 4 of Rev. Proc. 2010-51.
The standard mileage rate is 14 cents per mile for use of an automobile in rendering gratuitous services to a charitable organization under § 170. See section 5 of Rev. Proc. 2010-51.
The standard mileage rate is 19 cents per mile for use of an automobile (1) for medical care described in § 213, or (2) as part of a move for which the expenses are deductible under § 217. See section 5 of Rev. Proc. 2010-51.

Tax Incentives close to passing government hurrdles

Budget deal on tax incentives is close to passing congress.    This bill leaves in place many of the incentives for businesses and families.  It is expected to pass ny the end of the week.