Once again, lawmakers waited until late in the year to pass another tax “extenders” bill. The new “Protecting Americans from Tax Hikes (PATH) Act of 2015” retroactively extended 50 or so temporary tax provisions that each year are routinely extended, in many cases not only making them permanent, but enhancing their benefits for growers, garden centers and other green-industry companies.
The so-called “Cadillac” tax on the high-cost health insurance plans so many business owners provide themselves and key employees will be delayed from 2018 to 2020. And beginning with the Forms W-2, W-3, and returns for reporting non-employee compensation (e.g., Form 1099-MISC) filed for the 2016 tax year and later, PATH will require them to be filed on or before January 31. But, the big deal for many growers will be the permanent extension of the Section 179 small business expensing deduction.
First year write-offs
The so-called “Section 179” deduction allows growers an up-front expense deduction for the cost of equipment ranging from computers to POS systems to vehicles and machinery. The amount allowed as a write-off in the first year (instead of slowly deducting or depreciating over several years), is now permanently fixed at $500,000 per year (phased out dollar-for-dollar as expenditures begin to exceed $2 million in a year).
PATH for the first time also treats air conditioning and heating units placed in service after 2015 as eligible for expensing. And, in an unusual move, lawmakers will allow these amounts to be permanently adjusted for inflation beginning in 2016.
For 2015, a grower can expense up to $500,000 in equipment purchases. While the equipment can be new or used, if it is purchased using a trade-in as part of the price, the expense allowance only applies to the excess of the cost of the property over the undepreciated cost or book value of the property traded.
Faster write-offs for improvements
While many growers are already benefiting from shorter depreciable write-off periods for greenhouses and other “special purpose” structures, the IRS recently created a unique safe harbor for faster write-offs for remodeling or “refreshing” expenditures made by retailers. Garden centers and nursery retailers making improvements may also benefit from PATH’s new accelerated depreciation rules.
Under the new, now-permanent and faster write-offs for improvements made to leased property, as well as qualified retail property, PATH has created a permanent 15-year depreciable life for small business buildings and the improvements made to them. Without this unique write-off, buildings and many improvements would be depreciated over the much longer 39-year period associated with the building itself.
Energy efficient commercial buildings
A provision in PATH extends through the 2016 tax year, the above-the-line deduction for the cost of energy efficient improvements made to commercial buildings. A grower, garden center or nursery retailer can claim a tax deduction for new or renovated buildings that save 50 percent or more of projected annual energy costs when compared to national standards. A partial deduction for efficiency improvements to individual lighting, HVAC and water heating, or envelope systems is also available through the 2016 tax year.
The tax deductible amount is up to $1.80 per square foot and is available to owners or tenants (or designers, in the case of government-owned buildings) of new or existing commercial buildings that are constructed or reconstructed to save at least 50 percent of the heating, cooling, ventilation, water heating and interior lighting energy costs.
A partial deduction of 60 cents per square foot can be taken for improvements made to any one of three building systems — the building envelope, lighting or heating, and the cooling system. The partial building improvement must reduce total heating, cooling, ventilation, water heating and interior lighting energy use by 16 2/3 percent (16 2/3 percent is the 50-percent goal of the three systems spread equally over the three systems).
On a related note, the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) standards used for measurement purposes under the energy efficient commercial buildings deduction have been updated in PATH.
The work opportunity tax credit
PATH retroactively extended and greatly expanded the Work Opportunity Tax Credit (WOTC) through the 2019 tax year. The WOTC entitles employers who hire members of certain targeted groups credit against income tax of a percentage of first-year wages up to $6,000 per employee ($3,000 for qualified summer youth employees). In situations where the employee is a long-term family assistance (LTFA) recipient, the WOTC is a percentage of first and second year wages, up to $10,000 per employee.
While the maximum WOTC for a nursery growing or landscape contracting business hiring a qualifying veteran is generally also $6,000, it can go as high as $12,000, $14,000, or $24,000, depending on factors such as whether the veteran has a service-connected disability, the period of his or her unemployment before being hired, and when that period of unemployment occurred relative to the WOTC-eligible hiring date.
With individuals who begin work after Dec. 31, 2015, the credit also applies to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more). The credit with such long-term, unemployed individuals is 40 percent of the first $6,000 of wages.
More extended deductions
There are, of course, quite a few more tax-saving provisions, many of them quite narrow in scope such as those for film and theater producers, NASCAR racetrack owners, racehorse owners, and rum producers in Puerto Rico and the Virgin Islands, all included as part of PATH. But, which of the provisions will best help your operation reap its share of the $622 billion in tax savings?
The fact that many of its provisions apply to transactions occurring in 2015 and the uneven expiration date for many of these tax benefits makes professional assistance almost mandatory — at least if the grower, garden center or nursery retailer hopes to maximize write-offs for the 2015 tax year as well as plan to reap all of the benefits it is entitled to in the years ahead.