It’s that time of the year again! If you’re reading this, there’s a very good chance that you and your company are working on taxes. There’s also a good chance you’ve gotten confused or frustrated during the process. Good news, we have word directly from tax experts at Whitley Penn explaining what’s new this year. Here’s what you need to know.
On Friday, December 18, President Obama signed into the law the “Consolidated Appropriations Act, 2016” including the “Protecting Americans from Tax Hikes (PATH) Act of 2015” (“Act”, “law”). The new law ends months of uncertainty regarding “tax extender” provisions that Congress enacted only on a temporary basis in prior years. The Act makes several of these provisions permanent and also temporarily extends other provisions for a limited time period. Note that the effective date of the changes varies for each provision and the expiration period for each temporary provision also varies.
Some of the key provisions that were made permanent by the Act include:
- Deduction for state and local sales tax.
- Research and development credit.
- Increased Internal Revenue Code (IRC) Section 179 expense limitations.
- 100% exclusion for gain on qualified small business stock.
- Reduced built-in gain recognition period for S Corporations.
- 15-year recovery period for qualified leasehold improvements.
- 15-year recovery period for qualified restaurant buildings and improvements.
- 15-year recovery period for qualified retail improvements.
- Tax-free distributions from individual retirement plans for charitable purposes.
- Enhanced child tax credit.
- Enhanced education credits and expenses.
Various income tax, excise tax, and fee provisions that were modified or extended on a temporary basis by the Act include:
- Bonus depreciation on qualifying property. The applicable recovery percentages are 50% for property placed in service in 2015 through 2017, 40% in 2018, and 30% in 2019.
- Increased first-year depreciation limitation for automobiles and light trucks.
- Certain employer tax credits such as the Work Opportunity Tax Credit and the New Markets Tax Credit are extended and modified on a temporary basis.
- Various energy and alternative energy credits and incentives are extended and modified on a temporary basis.
- The 40% “Cadillac” excise tax on high-cost employer health plans is delayed until tax years beginning after December 31, 2019.
- The medical device excise tax is delayed and will not apply to sales made in calendar years 2016 and 2017.
- The annual fee assessed to health insurance providers is delayed one year.
The passage of the new law eliminates much of the uncertainty that taxpayers encountered for several years while trying to develop a long-term tax plan. We recommend that you contact your Whitley Penn tax advisor to discuss how these new developments impact your tax position and to implement the provisions into your overall tax strategy.