Governor Cuomo’s 2016 Agenda Includes Significant Tax Relief for Small Businesses
In an effort to increase regional economic development, Governor Cuomo unveiled his fourth proposal to his 2016 agenda which focuses on tax breaks for small businesses. Governor Cuomo’s fourth proposal is projected to save small businesses approximately $298 million dollars annually. If all goes according to plan, statewide savings could soar to $1.2 billion dollars by 2021.
The plan is simple in that it will impact those small businesses that file under the corporate tax code. For those small businesses that qualify, Governor Cuomo proposes to reduce the net income tax rate from 6.5 percent to 4 percent. The tax rate reduction is set to take effect on January 1, 2017.
In order to qualify as a small business for this tax break, the business must have “less than 100 employees, with net income below $390,000.00.”
Additionally, Governor Cuomo also proposed tax breaks for small businesses whose members pay taxes via the personal income tax. As it stands, sole proprietors and small farming business are eligible to subtract 5 percent of their income from their tax calculations. Under his proposal, Governor Cuomo plans to increase the exclusion to 15 percent. The Governor also intends to extend the exclusion to other small business such as partnerships, S-corporations and LLCs. However, these business entities must derive “some” income from an entity “with less than &1.5 million [dollars] in New York gross receipts, and their total business income from these sources is below $250.000.”
According to the Governor’s press release, approximately 1,091,000 small businesses across New York State will be able to benefit from the new proposals. A regional breakdown of the small businesses that will benefit from the Governor’s proposals are as follows:
|Central New York||37,047|
|Western New York||65,600|
|New York City||483,912|
IRS Raises Tangible Property Expensing Threshold
By raising the threshold from $500 to $2,500, the IRS has simplified record keeping requirements for small businesses with respect to deducting certain capital gains.
This change only affects those businesses that do not maintain an applicable financial statement (audited financial statement). Further, the change will only impact those amounts spent to “acquire, produce or improve” tangible property which would otherwise qualify as a capital gain.
Therefore, the threshold increase allows small businesses to immediately deduct certain expenditures which would typically have needed to be spread over a period of years through annual depreciation deductions.
Although the threshold has been increased, small businesses will still be able to claim deductible repair and maintenance costs even if the business exceeds the $2,500 threshold.
The new threshold will take effect commencing with the 2016 tax year.
IRS Announces 2016 Standard Mileage Rates
Effective January 1, 2016, the IRS released its optional standard mileage rates. Those rates are as follows:
- 54 cents per mile for business miles driven
- 19 cents per mile driven for medical or moving purposes; and
- 14 cents per mile driven in service of charitable organizations.
In comparison to the 2015 rates, the business mileage rate decreased 3.5 cents per mile while the medical and moving rates decreased 4 cents per mile.
According to the IRS, the standard business mileage rate is based on an annual study of the fixed and variable costs of operating an automobile.
A taxpayer does have the option of calculating the “actual costs” associated with the use of an automobile instead of using the standard mileage rates. However, a taxpayer may not utilize the business standard mileage rates if it also claimed a depreciation using any method under the Modified Accelerated Cost Recovery System or claiming a Section 179 deduction.
Prepared by Nicholas M. Hriczko