I have waited to report on this
until after it was signed into law, just to be safe. I usually wait to talk about tax legislation
until it is passed and signed, so I do not confuse readers with proposed tax
law that may or may not be passed, or passed as originally proposed.
The idiots in both houses of Congress
have passed the PATH Act of 2015, and it will be signed by BO any minute now, but I did not want to wait any longer to write about it. {BO has signed the law - "Agreeing at last: Congress sends tax, spending bill to president; Obama signs", and also click here- rdf}
It has nothing to do with taking an underground train from New Jersey to New York (although it does include a mass transit provision). It is “The Protecting Americans from Tax Hikes Act of 2015”, which finally, once again at the very last minute, deals with the now infamous “tax extenders”.
It has nothing to do with taking an underground train from New Jersey to New York (although it does include a mass transit provision). It is “The Protecting Americans from Tax Hikes Act of 2015”, which finally, once again at the very last minute, deals with the now infamous “tax extenders”.
This Act includes three tiers of extension
for the 50+ annual tax extenders – permanent, from 2015 through 2016, and from
2015 through 2019.
The more popular, and perhaps less
controversial, of the extenders have been made permanent. And the more questionable, and less
“deserving”, of the extenders are extended for 2015 and 2016 only. These include a laundry list of
industry-specific business tax benefits that were bought and paid for by
lobbyists lining the pockets of legislators.
In addition, a few other tax
benefits that were scheduled for expiration a couple of years down the road
were also made permanent, mostly to appease the Democrats. These benefits all include refundable tax
credits, which are a magnet for tax fraud.
Here is a listing of the major
components of the PATH Act that affect 1040 filers –
(A)
Made Permanent (2015, 2016 and beyond) –
1.
Tax Extenders:
a. Parity for Exclusion of
Employer-Provided Mass Transit and Parking Benefits – makes the maximum monthly
exclusion for transit passes and van pool benefits the same as the maximum
exclusion for parking benefits.
b. Qualified Charitable Distributions –
the ability of individuals age 70½ and older to exclude from gross income (and
use to satisfy their Required Minimum Distribution or RMD) up to $100,000 in
direct transfers from an IRA to a qualified charity. {unfortunately the unforgiveable
procrastination of the idiots in Congress may have made it too late for most
qualifying taxpayers to take advantage of the availability of this benefit for
tax year 2015 – rdf}
c. Section 179 Expensing Limitations –
the $500,000 maximum expense deduction for qualified business asset purchases
and the $2 Million qualifying property threshold where reduction of the
deduction begins.
d. Educator Expense Deduction – the
above-the-line deduction for up to $250 in unreimbursed business expenses for
K-12 teachers, counselors, principals, and aides. Beginning in 2016 the maximum deduction will
be indexed for inflation and will include professional development expenses.
e. Option to Deduct State and Local
Sales Tax Instead of State and Local Income Tax.
2. Other Tax Benefits:
a. American Opportunity Education
Credit.
b. Increased Additional Child Tax
Credit.
c. Increased Earned Income Credit.
(B)
Extended January 1, 2015 Through December 31, 2016 –
1. Exclusion of up to $2 Million of
Cancellation of Debt (COD) Income from Foreclosure of Principal Personal
Residence.
2. Deduction for Tuition and Fees – the
above-the-line deduction of $4,000 or $2,000 of qualified tuition and fees for
both undergraduate and graduate education.
3. Itemized Deduction for Mortgage
Insurance Premiums
4. Lifetime Maximum $500 Residential
Energy Credit of 10% on Qualified Energy Efficient Purchases and Improvements.
(C) Extended
January 1, 2015 Through December 31, 2019 –
The 50%
Bonus Depreciation Deduction for Qualified Business Asset Purchases.
The bottom line is that we will no
longer have to go through the nonsense each and every year of waiting until the
last minute to know what is allowed on the Form 1040. This will make year-round tax planning much
easier, and also make the job of the IRS much easier. The members of Congress are still idiots, but
at least this time what they have done is, for the most part, a good thing.
The major 1040-related extenders,
and I expect most if not all of the others, that expire in 2016 should expire
in 2016. The deduction for mortgage
insurance premiums, which is basically life insurance, should never have been
passed in the first place. And I do not
believe that homeowners who have made bad financial decisions should be
rewarded by excluding “cancellation of debt” income on foreclosures.
The 4 extenders that expire in 2019
are all business-related benefits that do not affect most 1040 filers.
I still question the appropriateness
of at least one of the extenders made permanent. I am talking about the above-the line
deduction for a very limited amount of “Educator Expenses”. As I have said consistently in the past, this
$38 - $70 gift from Uncle Sam is a nice nod to teachers, paying for a dinner
out. But why do teachers deserve this
more than police officers or firefighters or nurses or EMTs or other public
service employees? There is no real
reason why this should be made permanent.
Of course I will continue to claim this deduction for clients who
qualify.
The ACT also contains a few
non-extender provisions –
1. Formally “legitimizing” the use of
the “EA” credential by Enrolled Agents, a blow to the AICPA.
2. Higher education expenses that
qualify for tax-free distributions from a Section 529 plan now include computer
equipment and related expenses, such as computer software and internet access.
3. The effective date of the Obamacare
40% “Cadillac Tax” on high-cost company health care policies is changed from
2018 to 2020.
4. Forms W-2, W-3, and returns or
statements to report non-employee compensation (i.e. Form 1099-MISC) must now be
filed with the government on or before January 31 of the year following the
calendar year to which such returns relate.
5. Taxpayers claiming the American Opportunity
Credit must report the Employer Identification Number (EIN) of the educational
institution to which the taxpayer makes qualified payments under the credit
beginning in tax year 2016.
6. Educational institutions are
required to report only qualified
tuition and related expenses actually paid, rather than choosing between amounts
paid and amounts billed as is currently allowed (most institutions report only
amounts billed), on Form 1098-T, beginning with calendar year 2016.
The last item - #6 – is very
important for us tax preparers. It means
that, beginning in 2016, the Form 1098-T students receive from colleges will
actually provide important and needed information, and will no longer be as
useful as “tits on a bull”.
Click here to read a section-by-section
summary of the Act.
TTFN
2 comments:
Can you post a link to proof that POTUS has signed into law?
Anon-
I thought I saw a tweet that he had signed it. He has said he would.
I will provide a link when I find an official statement.
TWTP
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