The Holidays came a little early for taxpayers this year, when on December 16th, Congress decided not only to “renew” most of the so-called “tax extenders,” but to make them a permanent part of the tax code.
These incentives have become known as “tax extenders,” because each year since their inception, Congress has had to vote whether or not to “extend” them into the next tax year. This is the first time they have voted to make some of the incentives permanent.
The Protecting Americans from Tax Hikes Act of 2015, or PATH, means that taxpayers will no longer have to worry every December about rushing to take advantage of possibly expiring tax breaks.
Among the key tax extenders made permanent for individuals are:
- Child Tax Credit – this provision which would have expired in 2017, is now permanent.
- Enhanced American Opportunity Credit – A credit of up to $2,500 per year for the first four years of post-secondary education is now permanent.
- Educators Classroom Expense Deduction – PATH now makes permanent the deduction for out-of-pocket classroom expenses for elementary and secondary school teachers.
- State and Local Sales Tax Deduction – PATH makes the provision to claim general sales taxes, in lieu of deducting state and local income taxes, permanent.
Key provisions made permanent for business tax purposes include:
- Research Credit – The research and development tax credit for expenses related to R&D and the increases in payments to universities and other research organizations have been made permanent under PATH.
- Section 179 elections – Before PATH became law, Sec. 179 expensing limits for 2015 had gone back to $25,000 with an investment limit of $200,000. The Act now permanently sets the Code Sec. 179 limit at $500,000 with a $2 million overall investment limit before phase out. These amounts will be adjusted for inflation starting in 2016.
- Gain Exclusion on Qualified Small Business Stock – PATH makes permanent the exclusion for gains on the sale or exchange of qualifying small business stock held for more than five years by non-corporate taxpayers.
In addition, for individual taxpayers, the new law makes permanent: the extension of the earned income tax credit, the ability to take tax-free distributions from IRAs for charitable purposes, and the charitable deduction of contributions of real property for conservation purposes.
For businesses, the new legislation will also make permanent tax breaks for employer provided mass transit and parking benefits, and permanently extend the rule reducing to five years (instead of 10 years) the period for which an S corporation must hold on to assets after converting from a C corporation, to avoid “built-in gains” taxes.
This is just a snapshot of the sweeping permanent changes to the tax code that PATH has created. Individual taxpayers and business owners are encouraged to contact MBAF to make sure you are taking advantage of the changes, now, and in the future.
Taking advantage of the now permanent tax extenders can be quite complex. If you would like to benefit from our expertise in these areas, or if you have further questions on this Advisory, do not hesitate to contact our Tax and Accounting specialists, or call us at 1-800-239-1474.