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When President Obama signed a $1.1 trillion funding bill in December, it ensured that operations of the federal government would run until Sept. 30 of this year. While the budget hawks decried certain aspects of the bill, it did include nearly $700 billion in tax breaks, many of which will apply to businesses. Among them:
Permanent Extensions—Individual
• Charitable contributions of IRA proceeds for taxpayers age 70 1/2+ – up to $100,000/yr
• State and local sales tax deduction
• American Opportunity Tax Credit; beginning with 2016 tax returns, taxpayer ID# of the school must be included on return
• Teacher’s classroom expense deduction; and beginning in 2016 the amount will be indexed for inflation and can include “professional development expenses”
Permanent Extensions—Business
• Section 179 annual depreciation expense at $500,000 with phase-out beginning at $2 million of qualifying purchases, off-the-shelf software is eligible for Section 179, and Section 179 elections can be revoked; and for taxable years beginning after 2015, the amounts will be indexed for inflation, and qualified real property (no longer limited to $250,000), air conditioning and heating units are eligible for Section 179
• 15-year straight-line cost recovery period for qualified lease-hold improvements, qualified restaurant property, and qualified retail improvement property
• Research Tax Credit, and for taxable years beginning after 12/31/15 for eligible small businesses the credit can offset both regular tax and AMT and the taxpayer has the option to claim a payroll tax credit of up to $250,000 for up to five years
• 100% exclusion for gain of qualified small business stock owned longer than 5 years and AMT preference does not apply
• Reduction in S Corporation recognition period to 5-year holding period for built-in gains tax
Extensions Through 2019—Business
• Work Opportunity Tax Credit, and for workers hired after 2015 expanded to include qualified long-term unemployment recipients
• 50% Bonus depreciation (extended through 2020 for certain longer-lived and transportation property), phased down to 40% for 2018 and 30% for 2019; $8,000 maximum bonus depreciation for certain passenger automobiles phased down to $6,400 for 2018 and $4,800 for 2019; after 2016, qualified improvement property is no longer required to be subject to a lease, and three-year rule removed; and election to use AMT credits in lieu of bonus depreciation modified
• New Markets Tax Credit
Extensions Through 2016—Individual
• Maximum $4,000 above-the-line deduction for qualified tuition and related expenses (totally phased out at AGI of $80,000 single/$160,000 joint)
• Deduction for mortgage insurance premiums
• Principal residence mortgage debt relief (up to $2 million) excluded from income
• Residential energy credit; after 2015 windows, skylights, and doors must meet Energy Star 6 standards
Extensions Through 2016—Business
• Credit and special allowance for second generation biofuel producers
• Biodiesel and renewable diesel incentives
• Credits with respect to facilities producing energy from certain renewable resources
• Energy efficient commercial build-ings deduction (Section 179D); efficiency standard increased beginning in 2016
• Energy efficient new homes credit
Miscellaneous Provisions
• Employers and payers of non-employee compensation required to file W-2s and 1099s annually by January 31 effective for filings beginning in 2017
• Individual tax refunds for those claiming the Earned Income Tax Credit or the additional child tax credit will not be issued before February 15 effective beginning in 2017
• Qualified distributions from 529 plans can include computers, software, and internet access beginning in 2015
• Amounts received by wrongly incarcerated individuals are excluded from gross income
• Rollovers from qualified plans and IRAs can be made into SIMPLE IRAs generally after the SIMPLE IRA has been in existence for at least two years
• Several modifications regarding the treatment of Real Estate Investment Trusts
As always, before engaging in any transactions that may be affected by provisions of the new tax bill, consult with competent tax counsel to determine the tax implications of the proposed trans-actions.
