Knowledge Center > Blog >

August 2016 Tax Planning Update

August 2016 is here and that means 2 things, the summer heat is unbearable for all and having kids at home for the summer break is unbearable for some.

On the tax front, we can look forward to Congressional action to be quite limited since, in addition to their 2016 summer break being in full swing, we are also in the midst of the 2016 presidential election cycle. The nation waits for the November election results to provide some type of clarification on what the next four years may bring from a tax legislative standpoint.

For our immediate focus, we want to take a quick look at four key items that have taken place since the beginning of the 2016 year.

Research and Development Tax Credit

The PATH Act of 2015 has made the R&D Tax Credit a permanent tax planning feature. The uncertainty surrounding whether or not the R&D Tax credit would be extended has now been eliminated. The R&D Tax Credit is available to companies that develop new products or processes or enhance existing products or processes.
2 very meaningful tax planning strategies are now part of the R&D tax credit:

  1. Alternative Minimum Tax (AMT) – The tax credit can now be used to offset AMT liability. In prior years, the R&D tax Credit could not be used to offset AMT (AMT is a parallel tax calculation that limits/eliminates certain tax deductions) – as of 01/01/2016, eligible businesses with less than $50M in gross receipts will be able to use the R&D Tax Credit to offset Alternative Minimum Tax liabilities.
  2. Payroll Tax Liability – The tax credit can now be used to offset payroll taxes instead of income taxes. As of 01/01/2016, eligible businesses with less than $5M in gross receipts can use the R&D Tax Credit to reduce payroll taxes instead of income taxes. This is especially important for entities that do not have an income tax liability for the year; the tax credit can now offset payroll taxes.

Action Item: Determine your R&D tax credit opportunities and capture all available and applicable R&D expenses

International Taxation

Final regulations have been issued by the IRS in relation to the Foreign Investment in Real Property Tax Act of 1980, FIRPTA. These regulations were issued by the IRS in response to amendments originating from the PATH Act of 2015. The PATH Act increased the amount of withholding required when foreign taxpayers dispose of investments in U.S. real property interests. Under FIRPTA, the transferee must deduct and withhold tax on the total amount realized by the foreign person in the disposition. The rate of withholding is now 15% (10% for dispositions before 02/17/2016)
Action Item: In most cases, the buyer/transferee is the withholding agent. If you are the buyer/transferee you must find out if the transferor is a foreign person – If the transferor is a foreign person and you fail to appropriately withhold, then the buyer may be held liable by the IRS for the tax due.

Affordable Care Act

The requirement to provide affordable health insurance is in full effect for 2016. As discussed in the past, employers with 50 or more full time employees are now subject to the employer mandate. Fines are applicable for large employers with 50 or more full time employees that do not provide minimum essential coverage.

Action Item: Review your ACA insurance coverage requirements during this mid-year point and assess your 1095 form reporting processes for the entire 2016 year.

Changes in Due Dates

For the past few years, the original due dates for various calendar year taxpayers have been March 15th for C-Corporations and S-Corporations and April 15th for Individuals and Partnerships. Those due dates have now changed for Partnerships and S-Corps to March 15th and for C-Corps to April 15th ( The individual’s filing dates remain unchanged at April 15th) – The extensions will now run through September 15th for the aforementioned business entities.

Action Item: Communication with your professional tax advisor is important. An understanding of the impact of the newly enacted due dates can offset major filing delays during busy season.

Newsletter Sign-Up

Sign up for industry accounting and tax tips below