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JPS 2016 Year-End Business Tax Review

Every year we face an array of changes to the tax code. Since 2016 was an election year we can expect changes as we begin transitioning into 2017. Following are some highlights from JPS of business tax changes that take effect in 2016 and beyond. Some of these items are worth careful consideration in tax planning even in these last few days of the year.

Tax Return Due Dates

Effective for the 2016 tax year (returns due in 2017), several filing due dates were changed:

  • C Corporations:

– For fiscal years ending on December 31st, the new due date is April 15th. Note that in 2017, the 15th falls on a Saturday and the 17th is a legal holiday, so the due date will be Tuesday, April 18th. The due date for these returns was previously March 15th.

– For any returns with fiscal year end dates other than December 31st, the return due date will be the 15th day of the 4th month after the year-end. There are some additional details to consider that are beyond the scope of this article.

•  Partnership and certain LLC Returns:

– For fiscal years ending December 31st the new due date is March 15. This applies to general partnerships and most multiple-member LLCs. The due date for these returns was previously April 15.

•  Healthcare Forms:

– Employers now have until March 2, 2017 to provide Forms 1095-C or 1095-B to employees. These forms were previously due January 31.

– The due date for submitting these forms to the IRS will remain February 28th or March 31st if you choose to e-file.

Note that the due dates for tax filings of sole proprietorships, most single-member LLCs and S corporations remain the same.

Depreciation Expense

The Protecting Americans from Tax Hikes (PATH) Act of 2015 had a significant impact on depreciation rules, generally creating significant advantages for taxpayers:

•  Section 179:

– This deduction for up to 100% of the cost of qualifying assets was permanently increased to an annual amount of $500,000 or more.

– The annual deduction limitation was set at $500,000 for 2016, and the annual investment limitation was increased to $2,010,000. These amounts will be indexed for inflation in future years.

– The list of assets qualifying for the deduction has also been expanded and includes certain HVAC units and real estate.

•  Bonus Depreciation for new qualifying assets was extended. For years 2016 through 2017, 50% of qualifying assets can be deducted in the year the asset is placed in service, with the remainder subject to regular depreciation. In 2018 this will drop to 40%, and in 2019 it will drop to 30%. There is no provision for bonus depreciation after 2019.

•  Provisions permitting certain real estate to be depreciated over 15 years (instead of the usual 39 years) were also made permanent, and some changes to the rules will allow additional properties to qualify for the shorter life.

2017 and Beyond

President-elect Donald Trump’s tax plan could have a significant impact on the future tax landscape. Although much is merely speculative at this point, there are significant similarities between Trump’s plans and those released earlier in the year by the House of Representatives.

One of Trump’s significant proposals is the reduction of the top corporate tax rate from 35% to 15%. In addition, Trump has proposed that other business income such as from partnerships, sole proprietorships and S corporations would also be subject to a maximum 15% tax rate.

While a 20% drop may be too much to expect, there is bipartisan support for a reduction in the tax rate applicable to business profits. The elimination of the alternative minimum tax (AMT) has also been proposed.

If you believe that these proposals could become law soon and be effective for 2017, you may want to defer any business income that you can to 2017. It could also be beneficial to accelerate deductions into 2016. This would result in 2017’s taxable income being higher, but possibly being subject to lower rates.

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We understand that every business is different. At JPS, we’re prepared to assist you in navigating the ever-changing tax landscape. Have questions or would like more information regarding your specific tax implications, give us a call.

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