On Tuesday, Congress passed the Protecting Americans from Tax Hikes Act of 2015.  The Act extends some tax benefits that are important to the owners of security and alarm companies. As many company owners are painfully aware, Congress has temporarily “extended” many of these items in the past but they were either done for a year at a time, or, as in the case of last year, in arrears so that they covered the prior year but not the current or future years.

The Act has numerous provisions, but here are the ones that are most significant to owners of security companies and systems integrators.

• Section 179 expensing, which determines the amount of an investment a small business is allowed to write off entirely in the first year rather than being depreciated over multiple years, will be made permanent and its level would be increased. This is a huge benefit for most security and systems integration companies as most equipment — and certain “work vehicles” — qualify for Section 179 expensing. There are numerous restrictions and limitations so check with your tax advisor before making any end of the year purchases.
• A separate provision that allows 50% of the cost of improvements to be written off under “bonus deprecation” would be extended for five years. This is also significant to many security and systems integrations companies. Again, check with your tax advisors as there are some restrictions and limitations.
• Another huge provision in the Act is the extension of the reduced five-year Built in Gains period. Built in Gains come into play when a C Corporation converts to an S Corporation. Any assets existing at the time of the conversion are treated as if they are still assets of the C Corporation if they are sold during the Built in Gains period. Previously this period was 10 years, meaning that if a security company that was a C Corporation converted to S Corporation status it would still encounter “double taxation” on the sale of its RMR in an asset sale for 10 years after the election. The Act permanently reduces this period to five years, which is much more palatable. This is an excellent opportunity to convert from C Corporation status to S Corporation status for the new year. While electing to be taxed as an S Corporation is very simple, there are quite a few items to be considered.  It is very important that you discuss this with your tax advisor (and convince him/her that the RMR can really be sold at a multiple) before making the election.

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There are numerous other positive provisions of the Act including higher limits on expensing equipment and other items. Most significant is that Congress has passed a bipartisan bill that is pro-business, but not so much that it faces a presidential veto.

Please discuss the Act with your tax advisor or call us if they can’t answer your questions.  We not only know the tax code, we know the security industry.

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Bio: Mitch Reitman is Managing Principal at Reitman Consulting Group, Inc., which provides tax compliance and consulting services to the security and systems integration industry.  He can be reached at 817-698-9999 or at [email protected].

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