Tax Trends – Holiday Gifts from Congress

By November 17, 2015 August 28th, 2019 Uncategorized

by Scott Jackson

For the last two years I have been asked the same question, “Will the tax extenders be passed, and available, this year”?  Like last year, I get out my magic 8-ball and give it a shake.

First, why are companies curious about tax extenders?  Each year there are close to 50 business and individual tax benefits that congress either allow (extend) or decide the benefit should expire.  It takes an act of congress to extend these benefits and, as we have seen the last 15 years, it could take a while for the two parties to agree on a tax package.  The current batch of benefits up for extension expired on December 31, 2014 but congress can retroactively apply the benefits to the beginning of 2015 (exactly what they did in December last year).  This makes for a complicated year-end planning process for businesses.

Some of the business benefits expected to be included in the tax extender bill include:

  • “Bonus” Depreciation – allows for 50% of qualified asset cost to be deductible
  • 15-Year depreciation for qualified leaseholds, restaurant buildings and improvements and retail improvements.  Allows these costs to be eligible for “bonus” depreciation in addition to reduced life for depreciation (39 to 15 in some cases)
  • Increased expensing limit ($500k/$2m) for qualified property
  • Tax credit for research and experimentation expenses (i.e. R&D Credit)
  • Work Opportunity Tax Credit – up to 40% credit on eligible employees first $6,000 of wages

And because I love the work done by lobbyists, some of the more obscure benefits include:

  • Three year depreciation for race horses 2 years old or younger
  • Credit for two-wheeled plug-in electric vehicles
  • Temporary increase in limit on rum excise tax to Puerto Rico and Virgin Islands (No rum for you!)

Most of these benefits have been extended year after year after year, why, because it is good for the economy.  A majority of these benefits result from additional business expenditures.  Want to put new TV’s in the hotel you own?  If the extenders don’t pass, the business would deduct the cost of the TV over the next 5 years.  Not much of an incentive to purchase new TV’s.  Now if you can deduct half of the cost right away and the remainder over 5 years, the company might purchase the TV’s.  Thinking about hiring new employees, how about a credit for a portion of wages you pay them.

Why does it take until year end to get these passed you ask?  Well blame it on the accountants, just not this one please.  You might have heard the deficit is expected to be lower for the next two years (yay for us).  The extenders are not factored into that equation (can’t factor something in if it isn’t law right) because the law is enacted after the budget is approved.  This allows businesses to benefit in the current year and a deficit for the US government in the next year.  Government at its finest!

So back to the original question, will the tax extenders pass and be available for 2015?  I go back to my magic 8-ball and give it a shake, being a conservative magic 8-ball the reply is “Ask again later”, but if you ask me I say “Outlook good”.

For the millennial’s out there, Google magic 8-ball.