Every year since 2013, business owners and their CPAs waited anxiously as December rolled around, to see if the tax breaks enacted in a prior year would be “extended” to the next. These valuable tax incentives therefore, became known as “tax extenders.”
In 2015 the holidays came a little early for tax-payers, when in an unprecedented move, Congress decided not only to “renew” most of these so-called “tax extenders,” but to make many of them a permanent part of the tax-code.
Extenders made permanent
Spelled out in the Protecting Americans from Tax Hikes Act of 2015, (PATH), the new law 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
PATH makes permanent the $3,000 earned income threshold for the refundable CTC; the inflation adjustment and $10,000 threshold that was to go into effect post 2017 has been eliminated.
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
- The charitable deduction of contributions of real property for conservation purposes.
For businesses, the new legislation will also make permanent the parity of the exclusion amount of 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.
What it means for the future
The passage of PATH has provided tax-payers with some much needed assurance for tax planning strategies. Business owners in particular can now make long-range plans, based on the certainty of a wide-range of incentives and tax benefits.
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.
Steven Blumenthal, CPA is the Principal of MBAF CPA’s LLC, located on 440 Park Avenue South, New York, NY 10016. He can be reached by telephone at (212) 931-9254 or email at firstname.lastname@example.org.