Higher Ground: How the PATH Act Elevates Business
March 17, 2016 | James Purgason
We’ll get into how the PATH Act can elevate your business. But first, what is it?
The “Protecting Americans from Tax Hikes Act of 2015” is a law that includes provisions to help individual taxpayers and businesses alike. In it, companies large and small – the pillars of our economy – find numerous tax benefits. Some were already in place on a temporary basis. Others are new to the tax code.
Let’s look at two credits that have the potential to benefit the most businesses.
Climb Every Mountain: The Research Credit
Is your business steadily spending more on research each year? This credit – also known as the R&D Tax Credit – can help you increase your research and development budget as you decrease your tax burden. The Research Credit had been a temporary incentive since 1981. Recently, however, it has been allowed to expire yearly and then extended retroactively – making it harder to count on with confidence. Now that the PATH Act has made it permanent, you can take it into account when planning your budget and taxes. This credit has also been significantly modified in your favor.
The Research Credit is for you if:
- Your business is in an innovative industry such as medical, tech, or manufacturing
- Your business conducts research in other fields
How smaller businesses can apply it:
- If your Total Gross Receipts (TGR) average less than $50 million over the past three (3) years, you can claim the Research Credit against Alternative Minimum Tax liability (this is one of the most helpful changes to the credit)
- If your TGR are less than $5 million (startups, take notice) you can claim this credit against your payroll tax
Trim the Sails: Accelerated Depreciation of Qualified Real Property
If your business needs a makeover, this credit could work for you. The PATH Act gives permanent status to accelerated depreciation methods for qualified real property under the Modified Accelerated Cost Recovery System (MACRS). Accelerated depreciation means that you can reduce your property’s value on your balance sheet more quickly. The faster your assets depreciate, the more you save on taxes and more financial flexibility you have.
- Retail store improvement/remodel (according to the National Retail Foundation, there are 3.79 million retail establishments in the United States)
- Restaurant improvement/remodel (the National Restaurant Association says that there are over 1 million restaurants nationwide)
- Qualified leasehold improvement property
If your property falls into any of those categories, the cost of your remodel can be depreciated over 15 years MACRS – more than twice as fast as normal depreciation. Other businesses will have to stretch their remodeled asset tax write-down over the typical 39-year period.
I’m on Board: What Next?
Qualified real property may also be eligible for bonus depreciation and Section 179 expensing. Contact HHM Certified Public Accountants for help making the PATH Act work for you. Our experienced CPAs have provided professional tax planning and depreciation services for hundreds of companies.