2016 Tax Changes You Should Discuss With Your Accountant

Several major changes to the tax code take effect in 2016

upcoming tax changes in 2016

Several major changes to the tax code take effect in 2016. As you begin to shift your focus to your year-end tax planning, take a moment to review what's new for this year.

Affordable Healthcare Act

Employer shared responsibility provisions now cover employers with at least 50 full-time employees or equivalents. A full-time employee is defined as working an average of 30 hours or more per week, and an equivalent is two or more part-time employees whose combined hours average 30 hours or more per week.

Employers covered by these rules must offer qualifying healthcare coverage or pay the shared responsibility fine. They will also need to file Form 1094-C and Form 1095-C.

Qualified Parking Exclusion and Commuter Transportation Benefit

Up to $255 per month in employer-provided parking or mass transit passes are now excluded from an employee's adjusted gross income. The 2015 cap for the mass transit exclusion was retroactively raised to $250.

These exclusions give employers the option of providing tax-free transportation benefits for their employees. Review Publication 15-B for more information.

Business Mileage Rate

The business mileage rate was reduced to 54 cents per mile from 57.5 cents per mile. This rate applies to both employee reimbursements for travel and to businesses that are eligible to claim the standard mileage rate deduction.

Businesses maintain the option of calculating actual costs and depreciation instead of using the standard rate.

Section 179 Cap

The Section 179 cap is now set at $500,000 and will be adjusted annually for inflation. Section 179 allows qualifying businesses to expense qualifying purchases in full in the year of purchase rather than depreciating the item.

Since the rule is designed to help small businesses, the deduction phases out once a business has $2,000,000 or more in acquisition costs.

Bonus Depreciation Phaseout

Bonus depreciation is being phased out by 2019. The bonus currently allows up to half of the cost of new (not previously used) property to be deducted in the year of purchase. The remaining amount is deducted at standard depreciation rates.

The first-year bonus is 50 percent of cost through 2017, 40 percent in 2018 and 30 percent in 2019. Beginning in 2020, standard depreciation rules with no first-year bonus will apply.

Research and Development Credit Expansion

The Senate has permanently expanded the research and development tax credit that allows businesses to claim a tax credit to offset their qualified research expenses. Eligible small businesses with $50 million or less in gross receipts may also use the credit to offset their alternative minimum tax and payroll tax liabilities.

Watchlist: Streamlined Sales and Use Tax Agreement

Congress is currently considering a bill that would expand the collection of sales tax on online purchases. If the bill passes, sellers with sales in excess of $1 million annually will be required to collect sales tax on "remote sales."

A remote sale is a sale to a state where a seller lacks a physical presence and currently has no obligation to collect sales tax.

If the bill passes, large online sellers would be required to collect sales tax on all sales to states with an income tax.

Other Changes

There are dozens of smaller changes to the tax code each year including updated income and expense thresholds, new and expiring credits, and amendments to provisions that only affect some businesses. Ask your controller services about other changes that may affect you as well as about changes in your state's tax code.