Kudos to congress for passing legislation and protecting the timber industry from a bevy of tax increases. Importantly, the Act extends, and in some cases makes permanent, many provisions that will allow businesses more tax savings opportunities.
The PATH act, signed by the President on December 18, makes tax planning considerably easier and grants a few new tax breaks that will greatly enhance industry write-offs.
Paul Ryan R-Wis suggests “…we are ending Washington’s days of extending tax policies one year at a time.” Let’s hope Mr. Ryan’s words are true.
EXTENDERS IMPACTING THE TIMBER HARVESTING & WOOD PRODUCTS INDUSTRIES
Code Sec. 179: Expensing
The Act makes permanent an annual expensing limit of $500,000 with an overall investment limit of $2,000,000 (both amounts are now indexed for inflation). The new law also adds increased expensing of qualified leasehold improvement property.
The Act extends Bonus Depreciation for all new equipment placed in service through 2019. The percentage of allowed bonus is reduced from 50% through 2017 to 40% in 2018 and 30% in 2019. After 2015, Bonus Depreciation will include qualified improvement property without regard to whether the property is subject to a lease or if it is placed in service more than 3 years after the date that the building was first placed in service. Also, the Act included language that eliminates AMT adjustments for assets that are elected out of Bonus Depreciation placed in service after 2015.
Combined with the enhanced repair regulations, the above expensing provisions will significantly increase tax savings for our Timber Harvesting and Wood Products clients.
C corporations are subject to a reduced tax rate of 23.8% for qualified timber gains. Qualified timber gains means net gain described in Code Sec. 631(a&b) for the year, taking into account only trees held more than 15 years.
Research Credit is permanently extended, and for eligible small businesses the credit may be claimed against alternative minimum tax. Qualified small business may even claim the credit against FICA tax liabilities.
S-Corp recognition period for Built-In Gains Tax is permanently extended. The recognition period is now 5 years.
Work Opportunity Tax Credit Extended and Expanded.
The WOTC allows employers who hire targeted individuals to receive a credit against income tax for the first year wages, up to $6,000 per employee. The credit also applies to employers who hire qualified long-term unemployed individuals (40% of the first $6,000 of wages). The Act extends the WOTC so that it applies to eligible veterans and non-veterans who begin work by Dec. 31, 2019. In light of recent mill closures, we might expect to see more people eligible for the WOTC.
If you have questions about how these changes will impact your business, please do not hesitate to call us at, 207-873-1603.