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36 PalletCentral • March-April 2016 palletcentral.com ith the enactment of Protecting Americans from Tax Hikes (PATH) Act of 2015 last December, it's now possible to plan for business activities with certainty about the tax ramifications that result. The PATH Act made a number of tax rules permanent while providing extensions for others through 2019, or only through 2016. In budgeting for actions this year, manufacturing companies should factor in these deductions and tax credits, which effectively reduce your outlays by saving you taxes for the year. Your Equipment Do you need new machinery, additional computers, new office furniture, or other equipment? Usually, you must write off the cost of purchases using depreciation, which spreads deductions over a number of years fixed by law. However, there are some tax rules that help to accelerate your write-offs. These breaks apply whether you pay cash or finance your purchases in whole or in part. • Section 179 deduction ("first-year expensing"). You can elect to deduct the cost of equipment and machinery up to $500,000. However, this limit is reduced dollar for dollar if your total purchases for the year exceed a set amount. For 2016, the start of this threshold is $2,010,000 (up from $2 million in 2015). However, you can only benefit from expensing if you're profitable in 2016; you can't use this write-off to create or increase a net operating loss. • Bonus depreciation. You can deduct 50% of the cost of new (but not pre-owned) items placed in service this year. This deduction can be combined with first-year expensing, as well as regular depreciation. For example, in 2016 you buy machinery costing $680,000. You can expense the first $500,000 and then deduct $90,000 bonus depreciation (50% of $180,000). Of the remaining cost of $90,000 that has not already been deducted, you can claim regular depreciation. Assuming that the machine is classified as property with a seven-year recovery period, which applies for example to assets for the production of wood products, $12,861 is deductible as regular depreciation ($90,000 remaining cost x 14.21%, the depreciation rate fixed by law for year one). Thus, of the $680,000, you can write off a total of $602,861 this year. You'll continue to depreciate the balance of the cost ($77,139) over the remaining recovery period. • De minimis safe harbor. Instead of recordkeeping for the capitalized cost of equipment and machinery (i.e., adding the purchases to your balance sheet) that is deducted through first-year expensing, bonus depreciation, and regular depreciation, you can treat low-cost items as material and supplies for an immediate deduction. In 2015, this IRS-created rule was limited to $500 per item or invoice for businesses that did not have an applicable financial statement (an SEC filing, audited financial statement, etc.). Your Tax Strategies for 2016 By Barbara Weltman FINANCIAL W