Clearing a PATH for Business Tax Reductions

by Mark Colvin
CliftonLarsonAllen

A new tax law has brought a number of positive changes for business owners.

They say that taxes are one of the certainties of life. In my experience, so are tax changes. Just when you think you have it all figured out, lawmakers start making changes to the deadlines and details, sometimes for the better (from the taxpayer’s standpoint), and sometimes worse.

The Protecting Americans from Tax Hikes Act of 2015 (PATH 2015) brought a number of positive, progressive tax changes that businesses owners should be considering and planning for now. Let’s look at a few of them so you can plan your next move.

45L Energy-Efficiency Home Credit
This energy-efficiency credit is for new residential buildings and has been extended through 2016. It offers developers a $2,000 tax credit per new unit, so new multi-family dwellings (like apartments, condominiums, mixed-use developments, production homes, student housing and assisted care facilities) may qualify. A modest 10-unit apartment building could yield a $20,000 credit. Planning is essential to make the most of this benefit. In fact, planning for qualification could make some residential developments more financially feasible and a better investment than in the past.

179D Deduction for Energy-Efficient Commercial Buildings
The PATH 2015 Act breathed new life into a valuable deduction that has been around for years. For at least two more years, commercial building owners can take a deduction for the cost of improving the energy efficiency of qualifying structures. Architects and engineers can also still benefit for designing energy-efficient attributes of municipal buildings (i.e., public schools) through an allocated deduction. The new law does create a higher threshold to qualify for the deduction beginning in 2015. Instead of a 2001 model building code serving as the standard for efficiency improvement, a 2007 code is now the basis. With the building techniques and materials being used today, even that level of efficiency is attainable, putting the deduction within the reach of many who plan with this in mind.

R&D Tax Credit Now Permanent and Enhanced
Since it was first offered in 1981, the R&D credit has been consistently allowed to expire, only to be revived and extended for another year or two. Finally, the credit is considered permanent, making it possible for all eligible businesses to actually plan for it. As an important feature of the new permanent credit, small businesses (less than $50 million in average gross revenue over the prior three years), including pass-through entities, will be able to offset the alternative minimum tax (AMT) with R&D credits generated in 2016. Another new provision in the permanent law allows certain small startup companies (less than $5 million in sales) that may not be paying federal income tax to allocate up to $250,000 of federal R&D tax credits generated after January 1, 2016, to offset up to $250,000 of the FICA portion of their payroll taxes.

More Time to File for Expanded WOTC
Another great opportunity for tax savings in 2016 provides that employers now have until June 29, 2016, to file for the Work Opportunity Tax Credit (WOTC) for all hired employees in 2015 through May of 2016, which offers a federal income tax credit that can exceed $20,000 per employee. The PATH 2015 Act also added long-term unemployment recipients to the list of qualified workers that already included veterans, ex-felons, summer youth employees, long-term family assistance recipients and five other categories. To be eligible in the new group, a candidate must have a minimum of 27 consecutive weeks of unemployment and must have received unemployment benefits during that time. Prior to the recent deadline extension, employers had only 28 days from the hiring date to submit their claim. After June 29th, this requirement will again be a requirement.

NMTC Recognizes Community Investment
The New Market Tax Credit (NMTC) program attracts capital to low-income communities by providing private investors with a federal tax credit for investments made in businesses or economic development projects in certain locations. Much of Peoria is in an NMTC-eligible zone. An NMTC investor receives a tax credit equal to 39 percent of a qualified equity investment (QEI) and the credit is realized over a seven-year period. This financing tool has provided opportunities for development that otherwise would not have existed. iBi

Mark Colvin is a regional leader in CliftonLarsonAllen’s federal tax solutions practice. He can be reached at (309) 495-8754 or mark.colvin@CLAconnect.com.

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