We are excited about the most recent bill the President has signed. All parties have finally agreed and the President has signed the Protecting Americans from Tax Hikes Act of 2015, also known as the PATH Act. The Act not only extends numerous provisions, but also makes at least 20 provisions permanent.
- Many tax provisions previously expired in 2014 have been extended for 2015 and 2016 or even made permanent beyond that.
- Section 179 and bonus depreciation tweaks help business owners.
- Several small tweaks for individual taxpayers to provide credits and/or deductions.
- W2 forms must now be filed with the IRS on same date they are due to employees (1/31).
Probably the most pertinent provision that was made permanent and the provision that business owners wait on every year is Section 179. First of all, the deduction is retroactively reinstated for all of 2015 and then is permanently extended after this year. Using Section 179, taxpayers will be allowed a $500,000 annual deduction, with a $2,000,000 phase-out threshold. This is much improved from the previous $25,000 deduction limitation. After 2015, the $500,000 deduction and $2,000,000 threshold will be indexed every year for inflation. The Section 179 deduction is also permanently available for qualified real property, which includes qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. For 2015, there is a $250,000 limitation on qualified real property, but after 2015, there is no limitation.
Bonus depreciation was not permanently extended. Rather, it has been retroactively reinstated for 2015 and extended through 2019.
In 2014, the IRS passed a de minimis safe harbor rule that allowed taxpayers without an applicable financial statement to directly expense (instead of having to depreciate) assets that cost under $500, rather than having to list them on the depreciation schedule. Effective 1/1/16, the de minimis safe harbor amount increases to $2,500. The IRS did say that they will not challenge use of the $2,500 de minimis amount for periods before 2016 as long as certain requirements are met.
The following are other business notable provisions that were made permanent (note – only some of the permanent provisions have been highlighted):
- Research & Experimentation Credit.
- 15-year straight-line cost recovery for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
- 5-year waiting period for S Corporations to Avoid Built-In Gains Tax.
- Enhanced Charitable Contribution Deduction for Food Inventory.
The following are other individual notable provisions that were made permanent (note – only some of the permanent provisions have been highlighted):
- $3,000 earned income threshold for computing the 15% Refundable Child Tax Credit.
- American Opportunity Tax Credit (credit available for up to $2,500).
- Earned Income Tax Credit for Qualifying Individuals with 3 or more qualifying children.
- $250 deduction for certain expenses of elementary and secondary school teachers (after 2015, the amount will be indexed every year for inflation).
- Election to deduct state and local general sales tax as itemized deduction instead of state and local income taxes.
- Tax-free IRA Distributions to Charities of up to $100,000 for those at least 70½.
The following are notable provisions that were retroactively reinstated for 2015 and extended through 2019 (note –only some of the permanent provisions have been highlighted):
- Work Opportunity Tax Credit.
The following are notable provisions that were retroactively reinstated for 2015 and extended through 2016 (note –only some of the permanent provisions have been highlighted):
- Income Exclusion for Discharge of up to $2,000,000 of Qualified Principal Residence Indebtedness.
- Qualified Higher Education Expenses Deduction (up to $4,000).
- Deduction of Mortgage Insurance Premiums as Qualified Residence Interest.
- Energy-Efficient Home Improvement Credit.
The PATH Act also created some new provisions. Employer copies of W-2s, W-3s, and 1099s will be due by January 31 (the same date that forms are due to recipient). Also, after 2015 1098-T Forms will only include qualified tuition and related expenses actually paid, versus previous forms that could report amounts billed or paid. In relation to education expenses, after 2015 anyone claiming the American Opportunity Tax Credit will have to report the employer identification number of the educational institute on their tax return.
The PATH Act is great news for taxpayers and tax practitioners, as it will remove uncertainty moving forward about items such as the Section 179 deduction. If you have any questions about the PATH Act, or provisions that may affect you, please feel free to contact us.