On December 17th and 18th, 2015, Congress passed two important pieces of legislation that made permanent or extended many tax provisions that had expired on December 31, 2014. We have summarized the areas of the legislation that may be of greatest interest to our clients.
The first piece of legislation is referred to as the PATH Act, and stands for Protecting Americans from Tax Hikes. Certain tax benefits have been made permanent by this legislation:
• A deduction of $250 for teachers and other school professionals who incur expenses for books, supplies, equipment and other classroom materials. Like all other items reported on your tax return, ensure that you maintain your receipts for these expenses. In 2016, this deduction will be expanded to include expenses for professional development.
• The option to choose an itemized deduction for sales taxes OR state and local income taxes. This is particularly relevant to our clients who live in states where there is no state income tax.
• Taxpayers who are age 70 ½ or older are now permanently permitted to make tax-free distributions of up to $100,000 to charity from an individual retirement account. This can be helpful is managing a taxpayer’s adjusted gross income levels.
• The American Opportunity Tax Credit for an individual’s first four years of undergraduate tuition has been made permanent. Previously, this credit was set to expire in 2017. If a taxpayer qualifies, a credit of up to $2,500 is available on the first $4,000 of undergraduate tuition expenses.
• The child tax credit has been made permanent.
Four important tax provisions are extended two years through 2016:
• The above-the-line deduction for qualified tuition and related expenses;
• The exclusion of up to $2 million ($1 million if married, filing separately) of discharged principal residence indebtedness from gross income;
• The deduction for mortgage insurance premiums deductible as qualified residence interest.
• The residential energy credit is extended. Taxpayers are eligible for a lifetime credit of $500 on residential energy expenditures. The credit is calculated as 10% of eligible residential energy improvement costs.
Business taxpayers may be particularly interested in permanent and extensions to the treatment of depreciation on capital expenditures. The Section 179 expense provision for up to $500,000 of capital expenditures has been made permanent. The expense provision is subject to reduction if capital expenditures exceed $2 million.
Bonus depreciation has been extended for five years. For 2015 through 2017, bonus depreciation will be 50%. In 2018, bonus depreciation will be 40%, and in 2019, bonus depreciation will be 30%.
The second piece of legislation is the Consolidated Appropriations Act. Of greatest interest to our clients will be the fact that this legislation expands the definition of qualified higher education expenses that are eligible for tax-preferred distributions from Sec. 529 accounts to include computer technology and equipment. We are asked this question often and are happy to say that beginning with 2014 distributions, you can use 529 Plan accounts to purchase computer equipment for your child’s college education.
The Cadillac tax on high-cost health coverage, has been delayed for two years and is now effective for tax years beginning after Dec. 31, 2019. The provision imposes a 40% nondeductible excise tax on the amount by which the monthly cost of an employee’s “applicable employer-sponsored coverage” exceeds statutory dollar limits.
Changes to Tax Return Due Dates
Recent legislation has changed the tax return due dates for many forms that impact our clients. Below is a short summary of those most relevant to your situation. These changes will be effective for tax years beginning after December 31, 2015.
Partnership tax returns will be due on the 15th day of the third month following the close of the tax year. For a calendar year filer, that means that the partnership returns will be due March 15th instead of April 15th. Six month extensions are available.
C Corporation tax returns will be due on the 15th day of the fourth month following the close of the tax year, instead of the third month. For a calendar year filer, this means April 15th instead of March 15th. A five month extension is available to calendar year taxpayers until 2025. Special rules apply if your C Corporation has a June 30th year end.
Form FINCEN114, Report of Foreign Bank Accounts, will be due April 15th instead of June 30th. If this form is something applicable to your situation, you will file the 2015 form by June 30, 2016 and the 2016 form by April 15, 2017. Six month extensions will be available for 2016 forms.
We hope that you have a happy and safe holiday! Best wishes for the New Year; we look forward to seeing you in 2016!
If you have questions about any of the topics discussed in this newsletter, please feel free to call us. Remember, We’re Here For You.