Presenting an update on tax changes

On Dec. 18, Congress passed and the President signed into law the “Protecting Americans from Tax Hikes (PATH) Act of 2015” which makes some tax provisions permanent and extends a number of important tax provisions either five or two years. In addition, several of the provisions were significantly modified from years past.

The following highlights some of the key tax provisions for individuals and businesses that were made permanent or modified:

The enhanced American Opportunity Tax Credit, which provides up to $2,500 in partially refunded tax credits for post-secondary education;

The enhanced Child Tax Credit;

The enhanced Earned Income Credit;

The $250 above the line deduction for certain expenses of elementary and secondary school teachers and other school professionals, which in 2016 will also be indexed to inflation and include professional development expenses;

The deduction of state and local general sales taxes;

Parity of exclusion from income for employer-provided mass transit and parking benefits;

Tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers 70 ½ or older;

The increased contribution limits and carryforward period for contributions of appreciated real property for conservation purposes; the new law also extends the enhanced deduction for certain farmers and ranchers;

Increase in elective 179 business expensing of certain real property (up to $500,000 annual write-off of eligible business property costs that is phased out once those costs exceed $2,000,000 for the year); also for tax years beginning after 2015 the $500,000 and $2,000,000 limits are indexed for inflation;

15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;

Tax credit for research and development expenses; additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against Alternative Minimum Tax (AMT) and the credit can be used by certain even smaller businesses against the employer’s portion of the Social Security portion of the employer’s payroll tax (i.e. FICA) liability;

The employer wage credit for active duty members of the uniformed services; also beginning in 2016, the provision modifies the credit to apply to employers of any size, rather than employers with 50 or fewer employees, as under prior law;

The exclusion of 100% of gain of certain small business stock; the new law also permanently extends the rule that eliminates such gain as an AMT preference item;

Reduction in S corporation recognition period for built-in gains tax;

The special treatment of certain dividends of Regulated Investment Companies (RICs);

The charitable deduction for contributions of food inventory

The following highlights some of the key tax provisions for individuals and businesses that were extended:

-The exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income; extended through 2016;

The deduction for mortgage insurance premiums deductible as qualified residence interest; extended through 2016;

The above-the-line deduction for qualified tuition and related expenses; extended through 2016;

Bonus depreciation, at 50% for 2015-2017 and phased down to 40% in 2018 and 30% in 2019;

The Work Opportunity Tax Credit, modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) to 40% of the first $6,000 of wages; extended through 2019;

The New Markets Tax Credit; extended through 2019;

The Indian Employment Tax Credit; extended through 2019;

The new legislation also includes a two year delay in a pair of new taxes installed as part of the healthcare reform law: a levy on medical devices (which would have started in 2016) and another on high-end health insurance plans, known as the “Cadillac Tax,” which would have applied beginning in 2018.

We hope this information has been helpful and useful. Please do not hesitate to contact us if you would like more details concerning any of the items listed above.

Dan Clausen is a CPA with Clausen & Company, a certified public accounting firm in Reno. For more information, go online at: www.clausencpas.com.