Highlights of The Protecting Americans from Tax Hikes ACT of 2015:
The Protecting Americans from Tax Hikes Act of 2015 (PATH), a bill of tax extenders affecting a number of expired provisions in the tax code, was signed into law by President Obama on December 18. The 2014 expiration of many significant tax credits resulted in a year of uncertainty for businesses and individuals. However, beginning in 2016, businesses and individuals should feel confident in their ability to once again take advantage of several important tax incentives that have been extended through 2010 -- and in many cases, permanently.
Most significant to business owners is PATH's permanent extension of increases in small business expensing limitations ($25,000 to $500,000) and phase-out amounts (from $200,000 to $2 million) for Section 179 property. The act further allows expensing for computer software and qualified real property and eliminates the $250,000 expensing limitation cap on qualified real property. The Section 179 expensing limit has fluctuated so often in recent years that businesses have not been able to rely on it for equipment purchasing decisions. The permanent limit increase, which is indexed for inflation, should see businesses making more confident equipment investments. Furthermore, under the bonus depreciation provision extended through 2019, businesses will be able to depreciate property acquired and placed into service between 2015 and 2017 at a rate of 50%, which will phase down to 40% in 2018 and 30% in 2019.
PATH's extension of the Work Opportunity and New Markets tax credits through 2019 should spur the economy through incentives for hiring the chronically unemployed and investing in low-income communities. Businesses that hire individuals from target groups that face consistent employment barriers can take advantage of the Work Opportunity credit, which has been increased to 40% of the first $6,000 of wages. $3.5 billion in New Markets tax credits will be apportioned for each year through 2019 for equity investments in Community Development Entities that invest in low-income communities; the carryover period will be extended through 2024.
PATH provisions will make a positive impact on individual taxpayers as well as businesses. For example, those over 70.5 years in age will now continue to be able to exclude charitable distributions from IRAs from their gross income -- up to $100,000. The act also permanently extends the Child Tax Credit, which offsets the cost of raising a child, as well as the American Opportunity Tax Credit for qualified students enrolled in their first four years of college, and the earned income tax credit.
Other significant provisions in the Protecting Americans from Tax Hikes Act include:
- The deduction for certain expenses of elementary and secondary school teachers.
- The deduction of state and local general sales taxes
- The exclusion from gross income of a discharge of qualified principal residence indebtedness was extended through 2016.
- The itemized deduction for qualified mortgage insurance premiums was extended through 2016. This deduction phases our ratably for a taxpayer with AGI of $100,000 to $110,000.
- The above the line deduction for qualified tuition and related expenses for higher education was extended through 2016. This deduction also has limits and phase outs.
- The exclusion of 100% of gain on certain small business stock
- The reduction in the S Corporation recognition period for the built-in gains tax to 5 years.
- Parity for exclusion from income for employer-provided mass transit and parking benefits.
- The special rule for contributions of capital gain real property made for conservation purposes
- The charitable deduction for contributions of food inventory
- The employer wage credit for employees who are active duty members of the uniformed services
- Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
These extensions will enable more certainty in annual tax planning moving forward, which we have not had in 2014 and 2015.
*Note: Not part of the PATH Act but an important change to note for 2016 -- The mileage reimbursement amount for 2016 has been lowered to 54 cents per mile.
This notice has been prepared by Accounting & Tax Solutions, Inc. for informational purposes only. These materials do not constitute accounting, tax or legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.
Please contact your tax professional at Accounting and Tax Solutions, Inc. if you have any questions.
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