Once again, lawmakers waited until late in the year to pass another “extenders” bill. The new “Protecting Americans from Tax Hikes (PATH) Act of 2015” retroactively extended 50 or so temporary tax provisions, but reaping the benefit of these tax-saving provisions may mean amending an already-filed 2015 tax year. But it can also mean an early start on planning for 2016 and later tax years.

The so-called “Cadillac” tax on the high-cost health insurance plans some car wash operators and business owners provide themselves and key employees will be delayed from 2018 to 2020. But, the big deal for many car wash operators will be the permanent extension of the Section 179 small business expensing deduction.

FIRST-YEAR WRITE-OFFS

The so-called “Section 179” deduction allows a car wash business to claim an up-front expense deduction for the entire cost of equipment ranging from computers to conveyors to heaters and wash systems. 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).

Beware of the often-ignored potential pitfall with trade-ins. Although up to $500,000 in either new or used equipment purchases can be expensed and deducted, if purchased using a trade-in as part of the price, only the portion of the purchase price in excess of the undepreciated book value of the property traded in will qualify for the Section 179 first-year write-off or bonus depreciation.

A BONUS WRITE-OFF

Originally created as a short-term stimulus measure, bonus depreciation is back, albeit phased out over a five-year period. Bonus depreciation, which permits the immediate deduction of any business equipment expenses, rather than a depreciated tax benefit over time, has been extended at the former 50 percent rate for the 2015 to 2017 tax years, phased down to 40 percent in 2018 and 30 percent in 2019.

Making it even semi-permanent, allows any business that spends heavily on equipment, machinery, and other business property to reap large up-front tax breaks. In fact, overall tax savings from bonus depreciation alone are predicted to reach $281 billion over a 10-year period.

Many car wash operators will find the bonus depreciation break may be more valuable than the Section 179 deduction because the Section 179 expensing deduction is limited to only the taxable income of the business. Although any excess may be carried forward, losses generated by the 50 percent bonus depreciation can offset other income. In other words, losses from bonus depreciation can be carried back for two years, thereby generating a refund from Uncle Sam.

ENERGY EFFICIENT COMMERCIAL BUILDINGS

Generally, any buildings used for commercial purposes, even garages, fall within the general definition of a “commercial building.” A provision in PATH extends, at least through the 2016 tax year, the above-the-line deduction for the cost of improvements made to improve the energy efficiency of commercial buildings.

A car wash business can get tax deductions for improvements to either new or renovated buildings that save 50 percent or more of projected annual energy costs for heating, cooling, and lighting when compared to model national standards. Partial deductions for efficiency improvements to individual lighting, HVAC, and water heating, or envelope systems are also available.

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 $0.60 per square foot can be taken for improvements made to 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 ASHRAE (the American Society of Heating, Refrigerating, and Air-Conditioning Engineers) standards required for the energy efficient commercial buildings deduction have been updated in PATH. The provision modifies the deduction by updating the energy efficiency standards to reflect new ASHRAE standards beginning in 2016.

A STEP BEYOND

Those car washes and car care operations whose services extend to fuel sales will be interested to learn about the extension of the tax credit for so-called “alternative fuel vehicle refueling property.” The provision extends through 2016 a tax credit of up to 30 percent of the cost of installing qualified alternative fuel vehicle refueling property.

Specifically, the tax credit is for the installation of “non-hydrogen” alternative fuel vehicle refueling property since, under current law, hydrogen-related property is already eligible for the credit through 2016.

WORK OPPORTUNITY TAX CREDIT AND PAYROLL

For a car wash or car care service business thinking of adding new workers, PATH retroactively extended, and greatly expanded, the Work Opportunity Tax Credit (WOTC) through the 2019 tax year. The WOTC allows employers who hire members of certain targeted groups a credit against their income tax bill. The tax reduction, as opposed to a deduction, is 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 car wash hiring a qualifying veteran is generally also $6,000, it can be 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 December 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.

And, when it comes to payroll taxes, the new law requires forms W-2, W-3, and returns for reporting non-employee compensation (e.g., Form 1099-MISC), to be filed on or before January 31 of the year following the calendar year to which such returns relate. Those returns are no longer eligible for the extended filing date for electronically filed returns.

THE BUILT-IN GAINS OF S CORPORATIONS

As the economy improves many car care service businesses are replacing much of their equipment and other business assets. Unfortunately, many are also just discovering a corporate-level tax is being imposed at the highest marginal rate (currently 35 percent) on the so-called “built-in gain” of a car wash business operating as an S corporation.

Although S corporations are so-called “pass-through” entities passing along income and deductions to their shareholder, and thus incurring no tax bill, recognizing built-in gain means a levy on the business. That built-in gain is usually gains that arose prior to the car wash operation’s conversion from a regular C corporation to an S corporation, and arises when assets are sold. PATH retroactively and permanently provides that, for determining the net recognized built-in gain, the recognition period is a five-year period — the same period that applied to tax years beginning in 2014.

In other words, the built-in capital gains of an incorporated car wash that has become an S corporation must be held for five years in order to avoid a conversion capital gains tax. Permanently reducing the S corporation recognition period for the built-in gains tax will make it easier for any incorporated business to become an S corporation and to more fluidly change the status of their business entity to respond to changing market conditions.

SMALL BUSINESS STOCK

A number of incorporated car care businesses, start-ups, or existing businesses, use a unique “Small Business Stock” to finance the growth of their operations. The 100 percent exclusion from capital gain that was allowed on the sale or exchange of qualified small business stock held for more than five years by non-corporate investors has been extended.

Under pre-Act law, the exclusion was to be limited to 50 percent of the gain for stock acquired after December 31, 2014. The new PATH Act retroactively and permanently extends the 100 percent exclusion and the exception from minimum tax preference treatment.

Finally, car wash and car care service business owners and operators now have certainty for making capital investments. But, which of the provisions of the Protecting Americans from Tax Hikes (PATH) Act of 2015 will best help your business reap its share of the $622 billion in tax savings? Unfortunately, the complexity of the new law may mean professional assistance is required to maximize write-offs for the 2015 tax year as well as in planning to take advantage of all the benefits your business is entitled to in the years ahead.

Mark E. Battersby is an Ardmore, PA-based freelance writer, specializing in finance and tax issues.