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PATH Act should make tax planning easier for businesses

The House has approved a tax package, the Protecting Americans from Tax Hikes Act of 2015, that will make some tax extenders permanent. Both the Senate and the White House have indicated support for the bill, and news analysts expect it to become law before Christmas. As a result, for the first time in a long time, businesses will not have to cross their fingers that their tax strategies will actually work out.

The deal not only makes the Research and Development Tax Credit permanent, but it adds a new perk for small businesses. Beginning in 2016, small businesses will be able to claim the R&D credit against either their employer payroll tax liability or their alternative minimum tax liability.

Small businesses will also be relieved to see that the PATH Act addresses other deductions and credits. For example, Section 179 is now permanent with new expensing limits that will, from now on, be indexed for inflation. Mass transit and parking benefits tax breaks will be in place permanently, as will be the option to claim an itemized deduction for state and local general sales taxes rather than state and local income taxes.

Another plus: C corporations converting to S corporations have had to hold their assets for 10 years if they wanted to avoid an additional tax liability. The PATH Act reduces that hold time to five years.

Retailers planning for the next holiday season will be relieved to see that the Work Opportunity Tax Credit will be renewed. The credit, an incentive for retailers to hire individuals with physical disabilities and low income individuals, will be in place for another five years. It is not clear why it did not make the permanent list.

The PATH Act gives a much needed break to businesses that have been forced to hold off on tax planning or to spend time and money gambling on what Congress may or may not do.

Source: Accounting Today, “Congress Makes Some Tax Extenders Permanent,” Michael Cohn, Dec. 16, 2015

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