Carol McAtee & Associates, CPAs
Tax Changes for 2016
As we discussed in last week’s blog, it’s always a sure bet that with the new year there will be changes to current tax law, and 2016 is no different. So again, we want to share a checklist of tax changes from our firm’s monthly newsletter, this week for businesses, to help you plan the year ahead.
Part 2 – Businesses
Standard Mileage Rates
The rate for business miles driven is 54 cents per mile for 2016, down from 57.5 cents per mile in 2015.
In More Detail:
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car, van, pickup or panel truck are:
- 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.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.
These optional standard mileage rates are used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. Call if you need additional information about these and other special rules.
In addition, basis reduction amounts for those choosing the business standard mileage rate, as well as the maximum standard automobile cost that may be used in computing an allowance under a fixed and variable rate plan and the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate (FAVR) Plan were also announced by the IRS.
Section 179 Expensing
The Section 179 expense deduction was made permanent at $500,000 by the Protecting Americans from Tax Hikes Act of 2015 (PATH). For equipment purchases, the maximum deduction is $500,000 of the first $2 million of qualifying equipment placed in service during the current tax year. The deduction is phased out dollar for dollar on amounts exceeding the $2 million threshold amount and eliminated above amounts exceeding $2.5 million. In addition, Section 179 is now indexed to inflation in increments of $10,000 for future tax years.
The 50 percent bonus depreciation has been extended through 2019. Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016 and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019.
Work Opportunity Tax Credit (WOTC)
Extended through 2019, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more), and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.
Research & Development Tax Credit
Starting in 2016, businesses with less than $50 million in gross receipts are able to use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.
Employee Health Insurance Expenses
For taxable years beginning in 2016, the dollar amount is $25,900. This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.
Employer-provided Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees, in 2016 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $255 and the monthly limitation for qualified parking is $255 (up $5 from 2015). Parity for employer-provided mass transit and parking benefits was made permanent by PATH.
While this checklist outlines important tax changes for 2016, additional changes in tax law are more than likely to arise during the year ahead. Don’t hesitate to call if you want to get an early start on tax planning for 2016!
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Some Additional 2016 tax information for businesses….
Tangible Property Expensing Threshold Increases
The safe harbor threshold for small businesses deducting certain capital items has increased from $500 to $2,500. The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.
The change affects businesses that do not maintain an applicable financial statement (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.
For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.
The new $2,500 threshold applies to any such item substantiated by an invoice. Small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions, simplifying paperwork and recordkeeping requirements.
During the February comment period, the IRS received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce the administrative burden on small business. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smartphones, and machinery and equipment parts typically surpass the $500 threshold.
As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold.
Please call if you have any questions or would like additional details about this change.
If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
