Wondering if the recently passed PATH Act (Protecting American Taxpayers & Homeowners Act) affects your auto dealership?
The PATH Act was passed and signed into law in mid-December of 2015. This act is monumental for extending or making several tax provisions and credits permanent. In addition to giving credits to millions of working Americans, PATH also positively impacts businesses. Here are some tax provisions (in basic lingo!) that affect your auto dealership tax filing for the year 2015 and onwards.
- Increased Section 179 Expensing
Section 179 in the IRS Tax code allows you to deduct the full purchase price of leased or financed equipment and software that is used for service. Here are the changes you need to know:
- The deduction limit was raised from $25,000 to $500,000
- The spending cap was raised from $200,000 to $2,000,000
You can possibly apply the Section 179 ruling for the 2015 tax year, but the equipment and software must have been financed and used in service by December 31, 2015.
The increased expensing rule definitely applies to your auto business if you utilize technology such as computers or GPS tracking devices, and equipment (including office furniture) to run your dealership. Increased deduction and spending cap limits have helped businesses nationwide, and is expected to encourage businesses to finance equipment that increases efficiencies and productivity.
- Bonus Depreciation
The PATH Act includes a 50% Bonus Depreciation, which are additional deductions on new equipment purchased and put into service for the years 2015, 2016 and 2017. It phases down to 40% in 2018 and 30% in 2019.
- Work Opportunity Tax Credit Extended to 2019
If you hire unemployed individuals of targeted groups, your business may be eligible for a tax credit. Recipients under the IRS targeted groups are veterans, food stamp recipients, designated community residents and more. Up to $1,200 and $9,600 can be earned per employer depending on the employee targeted group status. Additionally, if the individual hired from that group has been unemployed for 27 weeks or more, your business will receive a credit of up to 40% on the first $6,000 in wages paid.
- Reduction in S Corporation Election from 10 years to 5 Years
Businesses who convert from C-Corp to S-Corp business classification are affected by this particular tax provision. The S-Corp recognition period for built-in gains taxation was reduced from 10 years to 5 years. Built in gains tax is a way for the IRS to prevent businesses electing S-Corp changes from avoiding the normal taxation they would receive for C-Corp liquidation. The reduction period from the PATH Act essentially lowers the amount of time that your business may have to hold assets before getting taxed.
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Sources:waysandmeans.house.gov, delota.gov