Protecting Americans from Tax Hikes Act
6 Year-End Tax Tips
What’s the Protecting Americans from Tax Hikes Act have to do with your tax preparation for 2016? Potentially significant tax savings and end-of-year calls to action to benefit you.
Protecting Americans from Tax Hikes Act (The PATH Act)
As the remaining days of 2015 appeared on the horizon, this massive tax bill sailed through Congress and was immediately signed by the President. The PATH Act makes permanent over twenty business and individual tax breaks, plus others extended for either two or five years.
Admittedly, determining how any of these apply to your specific circumstances will be challenging. The following is a summary of the PATH Act provisions as they apply to both individuals and businesses.
Given the complexity, maximizing your tax savings while minimizing your tax liability will be enhanced with the help of a skilled tax advisor who will sort through what may best be applied for your benefit. What follows is only a thumbnail sketch.
Individual Tax Breaks Extended Permanently
State and Local Sales Tax Deduction: Taxpayers itemize deductions for either the payment of state income taxes or state sales taxes. Predictably, the higher of the two deductions is typically chosen.
Enhanced Child Tax Credit: Each qualifying child in a household makes the taxpayer eligible to claim a $1,000 tax credit.
Qualified Charitable Distributions From IRA to Charity: Taxpayers who are over age 70½ may make a Qualified Charitable Distribution (QCD), not to exceed $100,000 per year, paid directly from an IRA to a charity - not taxed as income, plus the QCD counts towards satisfying Required Minimum Distribution obligations.
Sec. 529 Accounts: Expanded to include computer technology and equipment.
ABLE Accounts: ABLE accounts are tax-deferred accounts for individuals with disabilities and now may be established in any state.
Qualified Conservation Contribution: Tax deductions for contributions of real property exclusively for conservation purposes extended permanently.
American Opportunity Tax Credit: The tax credit is $2,500 per year and may be applied for up to four years of post-secondary education.
The Educator Tax Deduction: This deduction allows educators to deduct eligible unreimbursed classroom spending up to $250. The deduction was significantly improved by indexing it to inflation and including professional development as an eligible expense.
Individual Tax Breaks Extended Through 2016
Deductibility of Mortgage Insurance Premiums: May be deducted just as if it was interest on a home mortgage.
Exclusion of Discharged Mortgage Debt On Qualified Principal Residence: Up to $2,000,000 of cancelled debt associated with the mortgage of a primary residence may be discharged without tax consequences.
Residential Energy Efficiency Tax Credits: A number of tax credits for residential energy efficiency have been renewed. These tax credits are available for purchases made in 2016, as well as retroactive to purchases made in 2015.
Business Tax Breaks Made Permanent
Research & Development: A 20% tax credit which typically delivers a lot more in tax relief than a deduction.
Section 179 Expensing: The PATH Act allows SMBs to immediately deduct the full purchase price of qualifying equipment up to a maximum of $500,000 for equipment placed in service by December 31 of the calendar year purchased, and used for business purposes more than 50% of the time.
Section 179 Expensing Expanded to Include “Qualified Real Property”: Defined as -Leasehold Improvement Property; Retail Improvement Property; and Restaurant Property.
De Minimis Safe Harbor - Writing Off Certain Business Property: The safe harbor limit has been increased from $500 to $2,500.
Business Tax Breaks Extended Two to Five Years
Bonus Depreciation – Extended to December 31, 2019: 50% of capital expenditures in excess of $500,000 may be deducted for new equipment.
Work Opportunity Tax Credit – Extended To December 31, 2019: Applies to qualifying individuals beginning work before 2020.
Caution: As attractive as some or all of the above may appear, decisions must be based on a sound analysis of the specific business reasons, benefits and objectives at play. We stand ready to help.
(For a full list of the provisions, see the Section-By-Section Summary Of The PATH Act from the House Ways and Means Committee and the associated legislative text.)
6 Year-End Tax Tips
1. Review your 2016 significant life events. Consider happenings such as these:
• Major purchases or sales
• An inheritance
• Children may qualify for exemptions and tax credits, including adoptions.
• Marriage or Divorce
• A job change that incurred relocation costs by you
• A business start-up
2. Organize your information in a common-sense manner. Begin with the big obvious items that are easy to assemble and will help to minimize your tax bill. For example:
• Income statements: Forms such as W-2, 1099 and K1
• Mortgage interest on your primary residence, vacation home or rental property
• Real estate taxes
• State & local income taxes
• State & local personal property taxes
• Charitable contributions – cash and non-cash
• Contributions to your employer’s 401(K) retirement plan
• Flexible spending account (FSA) and/or Health Savings Account (HSA) contributions
Assemble all supportive documentation, e.g. receipts, statements, business filings, etc.
An excellent way to simplify this entire process is to use a tax-organizer prepared by a qualified tax advisor.
3. Tax loss harvesting to offset capital gains taxes
4. Bunch itemized deductions to qualify for 2016 tax deductions
5. Defer Income/Accelerate Deductions to drive deductions and minimize taxes
6. Look ahead to anticipate events in 2017 that may affect your tax status.
There are others, but these will give you an occasion to initiate a dialogue with your tax advisor to uncover additional or alternate opportunities.
At this time of year, it is important to have a game-plan in place to move on tax saving opportunities that may require rapid decision-making and execution. It may be of great value to have timely expert guidance and direction from a tax professional.
If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that we can help. Give us a call or drop us an email. We’ll respond immediately.