PATH Act of 2015 makes some tax incentives permanent, extends others

Businesses and individuals that have been waiting for Congress to act on several popular, expired tax provisions can take heart: a new law makes some of those provisions permanent.

Client Alert TagThe Protecting Americans from Tax Hikes (“PATH”) Act, which was signed into law by the President on December 18, makes some tax incentives permanent and temporarily extends others. Most provisions of the Act are retroactively applied to the 2015 tax year. The Act was the result of recent bipartisan work by Congress and is widely viewed as a victory for both individuals and businesses.

Permanent Business Tax Incentives

Increased Section 179 Expensing Limit – This provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014; it also sets new thresholds of $500,000 expensing limit and $2 million phase-out, up from the current amounts of $25,000 and $200,000, respectively.
Research & Development Credit – This provision permanently extends the research & development tax credit and, for the first time, allows for eligible small businesses to claim the credit against the alternative minimum tax liability or against the employer’s payroll tax liability.
Leasehold Improvements – This provision permanently extends 15-year straight-line cost recovery for qualified leasehold improvements, qualified retail improvements and qualified restaurant improvements.
C to S Corporation Built in Gains Recognition Period – This provision permanently extends the rule reducing to five years (rather than 10 years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains.

Long-Term Business Tax Incentives

Bonus Depreciation – This provision extends bonus depreciation for qualified property placed in service over the next five years (through 2019), subject to a phase-out schedule: 50 percent bonus depreciation continues for 2015, 2016, and 2017, with the percentage falling to 40 percent in 2018, and 30 percent in 2019.
Work Opportunity Tax Credit – This provision is extended through 2019 and is available to employers who hire unemployed individuals from certain targeted groups of hard-to-employ individuals.

Permanent Individual Tax Incentives

Charitable IRA Distributions – This provision permanently extends tax-free IRA distributions for charitable contributions by individuals age 70-1/2 and older.
State & Local Sales Tax Deduction – This provision permanently extends the deduction for state and local sales taxes in lieu of a deduction for state and local income taxes.
Enhanced Tax Credits – This provision extended several tax credits, retroactive to January 1, 2015.

  • Enhanced Child Tax Credit
  • Enhanced American Opportunity Tax Credit
  • Enhanced Earned Income Tax Credit

Educator Expense Deduction – This provision permanently extends the above-the-line deduction of $250 for teachers who buy unreimbursed school supplies.

The PATH Act brings some amount of certainty to the tax code, which is welcome after several years of one-year extensions passed in late December. If you’d like to discuss how you might be able take advantage of these provisions, please contact your WK advisor at (573) 442-6171 or (573) 635-6196.

SAFE HARBOR EXPENSING THRESHOLD INCREASES FOR SMALL BUSINESSES. To ease an administrative burden on small businesses when depreciating small-dollar tangible property, the Internal Revenue Service is raising the expensing threshold from $500 to $2,500, beginning January 1, 2016.
IRS LOWERS STANDARD MILEAGE RATE FOR 2016. The optional standard mileage rate used to calculate the cost of operating a vehicle for business purposes will be set at 54 cents per business mile driven on January 1, 2016. This is a decrease from 57.5 cents per mile in 2015.
FEDERAL ACT ELIMINATES SOME SOCIAL SECURITY CLAIMING STRATEGIES. The Bipartisan Budget Act of 2015, signed by President Obama on November 2, 2015, eliminated a number of Social Security claiming strategies.  The bill refers to these claiming strategies as “unintended loopholes” that were being exploited by some individuals and families to significantly increase their lifetime benefits.

Posted By Tory Brondel, CPA on 12-21-2015 | Topics: Client Alerts, News,