Congress recently passed—and President Obama signed—a $1.1 trillion budget bill. Among its many provisions were some relating to tax law, notably the Protecting Americans From Tax Hikes Act (PATH) which was tucked into the massive law. Tax Attorney Rob Wood explains what the new tax provisions will do for taxpayers in this report, based on his Forbes article “5 Things To Know About Year-End's Massive Tax Bill."
Wood says that one of the most important things about the new law is that “Congress agreed on something.” What is very important about the new law is its inclusion of the PATH Act. That act makes permanent a number of provisions that have been temporary for years and have been extended by a last minute extender bill in Congress, what Wood characterizes as a band-aid approach to the tax law. “There will be some predictability next year.”
The new law has no specific provisions aimed at helping trial lawyers, Wood says, noting the problems lawyers have with accounting for contingent fees. However, there are three provisions that will matter to trial lawyers and to any small business. The first provision has to do with expensing. Section 179 of the tax code permits a business to treat the purchase of business property up to $500,000 as an expense. During the past year, Wood says, the expensing amount had dropped down to $25,000. The amount is now back to $500,000, “and that is permanent.” Small businesses and law firms can now plan their purchases at year end knowing what the law will be in the future.
The second important provision has to do with bonus depreciation. Wood explains that, if a business goes over the $500,000 limit, the excess expenditures must be capitalized and depreciated over time. Equipment purchases might have a five- or seven-year life. The bonus depreciation provision allows a business to deduct 50% of the cost immediately. This is, says Wood, a “massive, massive benefit.”
The third important provision is the research credit. The research and development credit under the tax law was made permanent. This is a very large tax credit for businesses. Most lawyers probably don’t take advantage of it, Wood notes, but it is very important for businesses.
In addition to the three provisions already mentioned, Wood says that there are two delays worth mentioning. One of these is the Cadillac tax delay. This provision relates to the Affordable Care Act and the notion that it was to be funded in part by taxes on certain company health plans. It was set to take effect in 2018; now it has been delayed to 2020.
The other delay was the medical device tax. This was another tax that would help to fund the Affordable Care Act. The effective date of the tax has been delayed from 2016 to 2018.
As for average taxpayers, Wood says that the new law has not made big changes. However there are some provisions that affect lower income people, and there are some education benefits that might affect a number of people. But, as always, Wood suggests that people should plan ahead and pay for things before the end of the tax year. Trial lawyers need to pay attention to constructive receipt rules.
For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.