The benefits of the PATH act for small businesses
February 10, 2016

The Protecting Americans from Tax Hikes act, passed by Congress on December 18, 2015, provides many benefits for small businesses. The act was created to help grow the economy and alleviate some of the burdens placed on American taxpayers. It makes more than 20 tax relief provisions permanent and extends others that had expired after 2014 for two or five years. Below are some of the ways the PATH act helps your business as well as your clients' businesses:

Section 179
Instead of slowly recovering the costs of certain new or used property year after year, businesses can deduct the full price of equipment purchased within the qualifying tax season. Essentially, Section 179 incentives small business owners to purchase the assets their organization needs to thrive, thereby investing in themselves and boosting the economy.

Section 179 is truly for the benefit of small and medium-sized businesses. In 2014, a company could write off up to $500,000 in qualified expenses. Should the business spend over $2 million, the deduction would start to phase out dollar-per-dollar. The PATH act makes these figures permanent - without it, the expensing deduction amounts and investment limits would have fallen in 2015 to $25,000 and $200,000, respectively.

Also, the expensing limitation cap on qualified real property remains the same for 2015 but rises to the full Section 179 limit in 2016. Off-the-shelf software is now permanently on the list of qualified property, and air conditioning and heating units will also be eligible in 2016.

Bonus depreciation
Bonus depreciation for new company assets has been extended five years, allowing businesses to recover their expenses more quickly by claiming a first-year deduction. Such depreciable property includes office furniture, water utility property and computer software. Although the extension lasts until 2019, the benefits decrease as the years go by. Property placed in service from 2015 until 2017 has a bonus depreciation percentage of 50 percent. This number slides to 40 percent in 2018 and 30 percent in 2019. For property with a longer production period, this extension lasts until 2020. In lieu of bonus depreciation, businesses still have the option to elect to accelerate some alternative minimum tax credits.

Cost recovery extended
The 15-year straight-line cost-recovery period for qualified retail, restaurant and leasehold improvements has been permanently extended. This extension also applies to restaurant buildings and greatly benefits qualifying organizations that remodel on a regular basis.

The PATH act was an important step in supporting small businesses.

Nexus: G-WEBCD1