Noteworthy Tax Changes for the New Year
The tax extender bill has passed and been signed by the president, giving individuals and businesses resolution on many items that were set to expire. Unlike earlier tax extender bills, a number of provisions have been made permanent or extended for a number of years – giving a measure of certainty. Below is a summary of select provisions from the new bill.
Permanent Business Provisions
- R&D Credit – Starting in 2016, businesses with less than $50 million in gross receipts are allowed to benefit from this credit to set off the alternative minimum tax. Additionally, certain start-ups that might not incur an income tax liability could be allowed to balance payroll taxes with this credit.
- Section 179 Deductions – Previously set to expire and revert back to significantly lower levels, Section 179 deductions are held at their previous levels, entitling businesses to deduct up to $500,000 of the cost of qualifying asset purchases. The new deal also indexes the deduction limit to adjust for inflation in future years.
- The shortened 15-year life of qualified retail, restaurant and retail improvements remains instead of reverting back to the longer 39-year recovery life. This has been made permanent.
- Section 1202 permitting taxpayers who sell eligible small business stock held longer than five years to exclude 100 percent of the gain (subject to limitations) was made permanent instead of reverting to previously reduced exclusion levels.
Individual Provisions Made Permanent
- Enhanced child tax credit – Since 2009, parents have been entitled to a refundable credit of up to 15 percent of earned income in excess of $3,000, in addition to the $1,000 credit per qualifying child. Starting in 2017, this threshold would have jumped back to $10,000; however, the lower $3,000 threshold was made permanent.
- Since 2009 taxpayers have been allowed a $2,500 credit for up to four years of post-secondary education expenses subject to certain phase-outs. Starting in 2017, however, the credit was set to revert to a maximum of $1,800 with lower phase-out thresholds. The tax extender bill makes this credit permanent at the $2,500 level.
- Teachers Tax Credit – the teacher’s tax credit is now permanent. Educators are entitled to the $250 deduction for K-12 supplies paid for personally. Furthermore, the deduction is now indexed for inflation.
- The itemized deduction for state and local sales taxes in place of income taxes was made permanent.
- The bill permanently extends provisions encouraging charitable donations, including:
- Charitable contributions of real property for conservation purposes are deductible.
- Taxpayers over 70.5 years old can make donations directly out of an IRA without being taxed on the amounts, up to $100,000.
Provisions Extended Through Dec. 31, 2019
Not all of the provisions were made permanent. The new markets tax credit was extended only through the end of 2019. Additionally, bonus depreciation was extended through 2019 in a three-tiered fashion as follows: the current 50 percent immediate expensing will be extended through 2015, 2016 and 2017 before reducing to 40 percent in 2018 and 30 percent in 2019. After 2019, bonus depreciation provisions disappear completely.
Provisions Extended Through Dec. 31, 2016
- The tuition deduction allowing a maximum deduction of $4,000 for higher education costs will continue.
- Taxpayers may continue to deduct up to the first $15 million of costs for qualified film, television and live theater productions.
- Certain energy incentives were extended, including a $500 credit for the purchase of certain non-business energy-efficient property as well as up to a $2,000 credit available to the manufacturer of energy-efficient homes.
Delay of Obamacare Provisions
As part of the tax extender bills, the so-called Cadillac tax on high-cost, employer-sponsored health insurance is delayed from 2018 to 2020.