Source: IRS Publication 946 & Rev Proc 2016-48

With the passage of last year’s PATH Act, many parts of IRC Section 179 were made permanent.  Simply stated, an election can be made to expense most business property placed in service in 2016 (up to $500,000) as long as total property place in service doesn’t exceed $2 million in the year. Most clients are familiar with this rule as it relates to machinery, computers and equipment.  Here are some other areas that may qualify for your business:

1. Qualified leasehold improvement property
2. Qualified restaurant property
3. Qualified retail improvement property

PLEASE CONTACT US TO DISCUSS HOW THESE AREAS APPLY TO YOUR BUSINESS.

Also, know that:

1. The property has to be place in service during the year but NOT paid for.  Example: A business delivery vehicle purchased in December 2016 where only $500 was placed as a down payment.  The entire purchase price qualifies.
2. The asset doesn’t need to be new… only new to your business.

The IRS has changed their deadline when Forms 1099 must reach them for the year 2016 to JANUARY 31, 2017.  The deadline used to be February 28.

THEY WILL CHARGE PENALTIES FOR LATE FILINGS.

Because of this, start sending us names, addresses and tax identification numbers (either SSN or IRS business ID) for all contractors where we will be preparing forms 1099 NOW.

Thanks for helping us to help you avoid costly penalties.

ESPECIALLY WORKPLACE DISCRIMINATION SUITS.

Ref: Internal Revenue Code Sec 62(e) and Publication 525. 

Also see: Abraham J George v Commissioner, TC Memo 2016-156 [Section C, “Deduction for Attorney’s Fees”]

Generally, attorneys fees are placed on the individual return as a miscellaneous itemized deduction. HOWEVER, in the case of the long list of civil rights violations in Sec 62(e) including age, race and disability discrimination suits, those costs are placed on the front of the return as a direct deduction against the lawsuit proceeds (not to exceed the taxable amount of the settlement). This is a significant benefit to the taxpayer. 

Please contact us if you have questions in this area.

Source: IRS Announcement 2016-2

Generally, gross income includes all income from all sources including property and services “given” to taxpayers (e.g., a car won on a game show). The IRS exempts certain items from the definition of income: They have now expanded their earlier Announcement 2015-22 to exempt free data protection services given at no cost to customers, employees or other individuals whose personal information may have been compromised to NOW INCLUDE such services BEFORE a data breach occurs. (This does not apply to cash provided in lieu of identity protection services).

Reference: IRS Notice 2015-82 and Regulation Sec 1.263(a).

The IRS has conceded that their limit of $500 for immediate expense of equipment, leasehold improvements, etc was too low to be useful to small business. THEY HAVE INCREASED THAT LIMIT TO $2,500 PER ITEM, retroactive to 1/1/2015. Example: A business buys new computers for ten offices at a cost of $2,000 each. The entire $20,000 can be written off as purchased.

Section 179 application:  Because the assets are expensed as purchased and NOT capitalized as a fixed asset, they do not “use up” part of the Section 179 limit… currently set at the low-end of $25,000 for 2015. (We’re waiting for Congress to restore this to earlier larger limits).

Overall application example: During 2015, a contractor buys $60,000 of small equipment and a used work truck of $25,000.  No one item of the small equipment is over $2,500 of cost.  As long as the business has made the election under Regulation 1.263(a) and has a written accounting procedure in place at the beginning of the year stating the election, the business can expense the entire $60,000 of equipment (not treated as fixed assets) and then elect Section 179 treatment for the entire $25,000 of the truck.  Total equipment-related deduction in 2015 is $85,000.

Please call if you have questions.