The Protecting Americans from Tax Hikes Act of 2015 (PATH) has been signed into law just in time for the New Year. The main difference between this bill and what’s been passed over the last few years is that this act made some items permanent. The most notable of these permanent provisions is the increase of the §179 deduction to a maximum of $500,000.
Along with making some measures permanent, the legislation includes the passage of five-year and two-year extensions of various provisions. The combined effect of these measures will provide tax savings to millions of businesses and individuals. Of the many credits and deductions that were affected, listed below are some that are worth discussing with your CPA:
Business Tax Extender provisions of note:
- Increased expensing limitations and treatment of certain real property as §179 property –Businesses can now deduct up to $500,000 in qualified personal property and qualified real property acquisition costs.
- Research and Experimentation credit – Eligible Small Businesses can now use these credits to offset both regular and alternative minimum tax liabilities. In addition, Qualified Small Businesses may also use their credits against a portion of their employer payroll tax liability. Read more about this credit here.
- Qualified Small Business Stock – 100% of gain can be excluded for regular and alternative minimum taxable income.
- Low-income housing tax credit rates – The credit has a 9% minimum rate for non-Federally subsidized buildings.
- Reduced S Corp recognition for built-in gains tax – S corporations, that were formerly C corporations, must now only wait five years to avoid built-in gains tax (the previous waiting period was 10 years).
Extended through 2019:
- Work opportunity tax credit – Earn tax credits for hiring employees from certain groups, such as veterans and food stamp recipients, worth up to $9,600 per employee.
- Bonus depreciation – Accelerate the recovery of the costs of your depreciable assets with 50% bonus depreciation on qualified assets in 2015, 2016 and 2017; 40% in 2018; and 30% in 2019
Extended through 2016:
- Biodiesel and renewable diesel tax credit – Income and excise tax credits for use of these fuels.
- Credit for energy-efficient new homes – Eligible contractors may claim a credit of up to $2,000 on homes meeting standards for a 30% or 50% reduction in energy use.
- Deductions for energy-efficient commercial building improvements – Depending on the energy-efficiency level achieved by certain improvements, an immediate deduction of up to $1.80 per square foot, is available. Qualifying energy-efficiency improvements include those made to lighting, heating, cooling, ventilation, and hot water systems.
Individual Tax Extender provisions of note:
- Child Tax Credit – Credit of up to $1,000 may be claimed for qualifying children under age 17
- American Opportunity Tax Credit – Maximum credit of $2,500 per student for the first four years of higher education
- Above-the-line deduction for teachers – Eligible expenses of elementary and secondary school teachers may be deducted, up to $250
- Deduction of state and local general sales tax – Take an itemized deduction for state and local sales tax paid that exceeds state and local income tax
- Tax-free distributions from individual retirement plans for charitable purposes – Make direct contributions from an IRA of up to $100,000 per year without income tax for charitable contributions.
Extended through 2016:
- Above-the-line deduction for qualified tuition and related expenses – Enrollment and tuition expenses at a higher education institution in 2015 may be eligible for deduction
- Exclusion from gross income of discharge of qualified principal residence indebtedness– Cancellation of debt up to $2 million related to a qualified principal residence may be excluded from tax
- Mortgage insurance premiums treated as qualified residence interest– Mortgage insurance premiums treated as qualified residence interest can be deducted as mortgage interest
- Medical Device Excise Tax: The Act provides a two-year moratorium on the 2.3% excise tax imposed on medical devices. The excise tax will not apply to sales during calendar year 2016 and 2017.
For a full list of the tax extenders, see this summary from the US House of Representatives.
What does it mean for you?
Small business owners and individuals can reduce their tax liability by understanding and utilizing the relevant permanent, five-year, and one-year extensions mentioned above. Barnes Dennig offers a variety of tax services beyond return preparation, including consulting and financial planning, which can help you and your business take advantage of this legislation.
Let one of our tax professionals help you capitalize on tax extenders and enrich your business with insight that goes beyond the numbers. Reach out to us online by clicking here, or call 513-241-8313 to speak with a member of our tax team.