IRS delivers a lagging indicator, new tax law delivers certainty

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Reacting to the plunge in gas prices at the pump, the IRS shaved 3.5 cents per mile from the sum people can deduct from their taxes when they drive for business in 2016.

The new rate is 54 cents per mile, down from 57.5. It’s the first cut since 2010, when the rate dropped from 55 cents to 50.

Many factors go into computing the amount, said Jeffrey Horst, a partner at accounting firm Reinsel Kuntz Lesher, based in Manheim Township. But the cost of gasoline is one of the biggest.

“As you know from looking at the fuel prices at the pump, we’re looking at just under $2 per gallon,” Horst said.

Overall, the national average price is down nearly 40 cents from the end of 2014, when it was $2.39 per gallon, according to the U.S. Energy Information Administration.

That’s a lot of extra money in consumers’ pockets.

Tax certain

You might have missed the mileage-rate announcement amid the hullaballoo over year-end tax changes enacted by the U.S. Congress and signed by President Obama. The new law is known as The Protecting Americans from Tax Hikes Act of 2015, aka The PATH Act.

The PATH Act gives permanent extensions to a bevy of tax breaks that had long been surviving on annual renewals, including tax credits for research and development, and for investments in wind and solar energy.

The practice of passing annual renewals created some uncertainty for businesses, which couldn’t be fully confident of how their decisions might affect future tax liabilities. Now they know.

I’ve always been a bit skeptical about the role tax considerations play in business decisions. I don’t think any businesspeople will be driving less now that the mileage deduction has been cut — nor do I think they drove more when the deduction rose.

If a market opportunity is staring you in the face, you are probably still going to check with a CPA first. But it’s the profit potential that likely determines the next step.

Taxes are going to bite no matter what Congress or the state legislature do.

So I remain a skeptic. But now that many tax credits are permanent, it will be worth keeping an eye on the economic impact in 2016, particularly where R&D is concerned.

Maybe we’ll finally get those hoverboards promised in the movie “Back to the Future.” Oh, wait.

The week ahead

Among places likely to see greater investment in 2016 are the neighborhoods of York city. Staff reporter David O’Connor will be writing in this week’s issue about developments outside of downtown in the White Rose city.

We also bring you a closer look at the aftermath of the recent move by Donegal Group Inc. to buy out an activist investor. Other stories include a profile of a growing Dauphin County general contractor and an update on the distribution business recently launched by the owners of York City Pretzel Co.

The Inside Business topic is architects, engineers and consultants. Staff reporter Michael Sadowski found out how engineering firms are adapting to the ups and downs of work in Pennsylvania’s natural-gas industry.

The lists cover architectural firms, recycling companies and commercial waste-hauling services.

Find the week’s networking opportunities here.