Preface: the 2015 PATH Act has many key tax provisions, read further to see how it can benefit you or your business.
2015 Tax Extenders Bill – Protecting Americans from Tax Hikes (PATH)
It’s here! The new “tax extenders” bill, long-awaited, has passed Congress, and the legislation is now effective. Among the tax extensions lawmakers approved on the PATH Act of 2015, officially coined “Protecting Americans from Tax Hikes,” are numerous key tax provisions, that will be appreciated by many business owners. Some of the provisions are highlighted as follows.
Highlights:
Section 179: The Section 179 expense for capital purchases (depreciable property) that reduced accelerated depreciation expensing to $25,000 for 2015, is now adjusted back up to $500,000, retroactive January 1, of 2015, e.g. if you purchased $300,000 of new equipment in 2015, and have $300,000 of taxable business income, you could expense all the equipment and reduce your federal taxable income to zero. This threshold phases out if a business acquires more than $2,000,000 of depreciable equipment during the tax year. The expense is now the same as it was in 2014; and is now a permanent tax provision.
Bonus Depreciation: Bonus depreciation on new assets has been extended at 50% into 2017. Qualifying assets could be depreciated at an accelerated rate, and can be combined with the Section 179 expense too. Bonus depreciation can be deducted even if the expense creates a loss, e.g. if you purchased $300,000 of new equipment for the tax year, and your taxable business income is $100,000 before bonus depreciation expenses, you could deduct $150,000 of the equipment with the 50% bonus depreciation, and have a $50,000 tax loss carryforward, or carryback.
Employee transportation benefits: The tax extenders bill provides tax-free fringe benefits for employee transportation expenses, i.e. van pooling, or say parking fees, to a maximum of $250 per month, effective January 1, 2015, e.g. if your business pays employees vanpooling, if the cost does not exceed $250 per month, it is a tax-free fringe benefit.
Teacher classroom expenses: with the bill, teachers and educators can deduct up to $250 of out-of-pocket expenses, retroactive January 1, 2015, i.e. if a teacher or professor, purchases $75 or $150, in qualifying educational “Christmas” gifts for their students, they can deduct up to $250 of that expense on 2015 taxes.
Charitable Donations from IRAs: Permanent extensions also include tax-free IRA distributions made directly to a qualify charity for individuals over 70 ½, e.g. required minimum distributions from IRA’s can be donated to a qualifying nonprofit, with zero tax paid on the qualifying distribution. Favorable rules for donations of food inventory and contributions from S-corporations, are effective January 1, 2015.
Research and Development Credit: Now permanent, the R&D credit permits businesses with $50mm or less in gross receipts to continue to claim a credit for R&D expenses. In 2016, the credit can be applied towards alternative minimum tax liabilities, and qualifying businesses can use up to $250,000 of the credit annually to offset FICA tax.
Residential Energy Credits: Retroactive January 1, 2015, the residential energy credit permits a maximum of a $500 credit towards energy saving expenditures, i.e. new heating or air conditioning systems.
American Opportunity Credit: Now permanent, taxpayers can claim a credit up to $2,500 for each of the four years of college education, subject to certain phase outs.
Child Tax Credit: Now permanent, the bill permits child tax credits to qualifying taxpayers for the additional refundable enhanced child tax credit.
State and Local Sales Taxes: For states with low or zero income tax rates, the bill permits permanent deductions of state and local sales tax.
While this is not an exhaustive list, the above, highlights the most pertinent of the 2015 PATH tax provisions.