Congress created the PATH Act, Protecting Americans from Tax Hikes Act of 2015, which was passed and signed into law on December 18th, 2015 by President Obama. The PATH Act of 2015 includes many tax breaks that expired at the end of 2014 and would need to be passed in order to be utilized in 2015. Congress surprised us and made some of the tax breaks permanent! Outside of the nitty gritty details of the entire act, eeCPA wants to focus on a couple key tax deductions that could benefit your business for 2015: the Section 179 and 50% Bonus Depreciation deductions. You’re probably thinking “with a week of 2015 left? Yea right!” There is no time like the present to maximize your deductions for optimal savings!
The section 179 deduction was made permanent and is good for new and used equipment that was purchased at any time throughout 2015 but by end of day on 12/31/15! The limitation for full deduction is $500,000 and the maximum that can be spent is $2,000,000 without decreasing your deduction dollar by dollar.
Most business equipment that is used for day to day operations qualifies for this deduction. Although as we all know any deal that sounds too good to be true must have its exceptions. See the illustration to the right.
To put into perspective how this tax break works in your favor let’s take a look at the below example:
Purchased machinery for $60,000.00 on 7/11/2015 in a 35% tax bracket.
First year section 179 deduction: $60,000.00
Cash savings on purchase (60,000 x 35%): -$21,000.00
Cost of equipment after savings: $39,000.00
If you plan to purchase, finance or lease equipment for your business to utilize this deduction please do so by 12/31/15 as this is a use it or lose it type deduction!
The bonus depreciation was extended to 2019 in the PATH Act and is NOT permanent. For tax years 2015-2017 it is 50%, in 2018 it reduces to 40% and finally to 30% in 2019. After 2019 it may not be available but we’ll have to wait until the end of 2019 to see what Congress decides for 2020 and beyond. The bonus depreciation is in addition to the section 179 deduction for NEW equipment only and may be allowed to carry-forward to a future year. This optional tax break allows businesses to depreciate half the value of equipment in the first year it was purchased and placed into service. Another perk of this bill is that a business could claim the alternative minimum tax (AMT) credits instead of the bonus depreciation for 2015.
Still unsure how beneficial these two deductions are? That’s ok! eeCPA is here to help with business and tax guidance all year round, contact us at (480)596-8299. We are committed to your success by allowing you to focus on daily operations and leaving the confusing, time consuming tax preparation to us! If you are already a client then let us know of your recent purchase and we’ll take care of the rest! If you are seeking tax preparation for 2015 contact us immediately for consultation.
Remember, to ensure you’ll qualify for these deductions on your 2015 return you need to act fast before end of day 12/31/15!
For more information on the Path Act