July 16, 2018

Washington Wire Special Edition: R&D, 179 Now Permanent; Bonus Depreciation Extended

12/21/2015

 R&D, 179 Now Permanent; Bonus Depreciation Extended 

 
On Friday, December 18, President Obama signed into law a bill making permanent the R&D Tax Credit and Section 179 Equipment Expensing while extending Bonus Depreciation through 2019. This is a major victory for all manufacturers, particularly One Voice members, of which in 2014, 91% said they used Bonus Depreciation, 89% benefited from Section 179, and roughly half claimed R&D. For the first time since the 1980’s, manufacturers have some stability in the tax code, allowing businesses to invest with confidence that the rules will not change over the next four years and beyond.
 
Thankfully, this bill bring an end to the last minute December extensions of expired tax provisions, which continued to stifle economic growth, preventing many One Voice members from purchasing and placing into service equipment ahead of a December 31 deadline. Manufacturers will save hundreds of thousands of dollars each year under this bill and be able to develop long term business plans.
 
The tax code is still riddled with inefficiencies, and in 2017, Washington will consider comprehensive tax reform. During those negotiations, One Voice will fight to increase the R&D to 20%, bring tax rates for pass-throughs on par with those of C-Corporations, and lower the top margins for both to globally competitive levels.
 
Thank you again to all the members of NTMA and PMA who lobbied with us over the past several years to extend and make these provisions permanent. This new law is a significant victory for all small and medium sized businesses manufacturing in America.
 
A summary of select tax provisions included in the federal funding bill signed into law on December 18, 2015 is below. To see how your Representative voted specifically on the tax portion of the bill, click here.
 
Expired Tax Provisions Measure Select Summary (Tax Extenders)
 
Permanent 14% R&D with AMT Claim – Extends R&D Tax Credit for 2015; Starting in 2016, R&D is made permanent at its current 14% level and allows small businesses ($50 million or less in gross receipts) to claim the credit against their Alternative Minimum Tax (AMT) liability.
 
Permanent Section 179 Equipment Expensing – Extends Section 179 for 2015 restored to the $500,000 with a $2 million phase-out indexed to inflation starting in 2016. Also treats air conditioning and heating units placed in service beginning after 2015 as eligible for expensing.
 
Extends Bonus Depreciation through 2019 with AMT Claim – Extends from January 1, 2015 through 2019 Bonus Depreciation through 2019 with an additional year for certain property with a longer production period. The depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019. The provision continues to allow taxpayers to elect to accelerate the use of Alternative Minimum (AMT) credits in lieu of Bonus Depreciation for property placed in service during 2015 and beginning in 2016, increases the amount of unused AMT credits a taxpayer may claim in lieu of Bonus.
 
Two-Year Moratorium on Medical Device Excise Tax – The measure suspends for all of 2016 and 2017, the 2.3-percent excise tax imposed on the sale of medical devices imposed under the Affordable Care Act.
 
Commercial Building Energy Efficiency Deduction Extended – Extends through 2016 the above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings.
 
Extends Hiring Long-Term Unemployed Credit – Extends through 2019 the work opportunity tax credit and beginning in 2016, allows employers who hire qualified long-term unemployed individuals (27 weeks or more) to claim up to 40 percent of the first $6,000 of wages paid.
 
Extends Empowerment Zones for Two-Years – Extends through 2016 the tax benefits for certain businesses and employers operating in empowerment zones (economically distressed areas), and the tax benefits available include tax-exempt bonds, employment credits, increased expensing, and gain exclusion from the sale of certain small-business stock.
 
Exclusion of Small Business Stock Held for Five Years – Extends the temporary exclusion of 100 percent of the gain on certain small business stock for non-corporate taxpayers to stock acquired and held for more than five years.
 
Permanent Five Year Built-in Gains for S-Corporations – Permanently extends the rule reducing to five years from ten the period for which an S-Corporation must hold its assets following conversion from a C-Corporation to avoid the tax on built-in gains.
 
S-Corporation Charitable Donations – Permanently extends the rule providing that a shareholder’s basis in the stock of an S corporation is reduced by the shareholder’s pro rata share of the adjusted basis of property contributed by the S corporation for charitable purposes.
 
501(c)(4) Gift Tax Exemption – Treats transfers to organizations exempt from tax under section 501(c)(4), (c)(5), and (c)(6) as exempt from the gift tax.