Yes, it’s tax filing season again, already!
So for the context of this article, we’ll discuss only those changes affecting your individual clients.
Summary of Individual Tax Provisions Made Permanent
- Charitable giving incentives:
- Taxpayers are now allowed to donate real property for conservation purposes.
- IRA owners over 70.5 years old may now make charitable donations directly to a qualified charity, without being taxed on the distribution amount up to $100,000/year.
- Itemized deduction for state and local sales taxes in lieu of income taxes.
- Teacher’s supplies deduction: Teachers will now have a deduction option for K-12 supplies expense up to $250/year.
- Enhanced earned income credit: The law made permanent the refundable incentive for low-income families, especially those with three or more children, and also increased the income phase-out ranges for married couples filing jointly.
- The Enhanced American Opportunity tax credit remains at the current level of $2,500 of the first $4,000 in educational expenses for four years of post-secondary education. The phase-outs still remain at $80,000 single and $160,000 married, filing jointly of income limits.
- Enhanced Child tax credit: The current law allows $1,000 credit per qualifying child with an additional refundable credit equal to 15% of the taxpayers’ earned income in excess of $3,000. This credit was set to expire beginning in 2017.
- Due to fraud, another permanent provision included in the new law enforces that earned income credits or child tax credits cannot be filed for in amended returns, claiming those credits for any year that the taxpayer did not have a valid social security number or ITIN.
Summary of Individual Tax Provisions Extended through 2019
- The new markets credit: An individual or corporate tax credit for making qualified equity investments in qualified community development entities.
- Bonus Depreciation: 50% immediate expensing is good through 2017, but it drops to 40% in 2018, and only 30% in 2019, before expiring altogether.
Most of the remaining tax provisions were only extended through 2016. Below is just a glimpse of those worth mentioning:
- Tuition deduction of $4,000 will continue for tuition costs of higher education, as an above-the-line deduction.
- A $500 credit on the purchase of non-business energy-efficient items.
- On commercial property related to heating, cooling and lighting improvements, the section 179D expensing option remains intact.
- Probably the most beneficial is the exclusion of COD income on a principal residence, where a taxpayer is forced to sell the home in foreclosure or short sale, and does not repay the lender. This previous exclusion of income up to $2 million has been extended for this cancellation of indebtedness.
In addition, there were some 50-plus provisions extended for just two years, in addition to all the 2019 and permanent extenders mentioned above. However, probably the most controversial extender/delay is Obamacare. This extended provision actually pauses the 2.3% excise tax on medical devices in the years 2016 and 2017. It also delayed the Cadillac tax on high-cost, employer-sponsored insurance plans until 2020 from 2018.
So while many of the tax extenders are not new or just more of the same, the permanent changes provide some solid, known tax provisions we can all bank on going forward.
Andy graduated from the University of Alabama-Birmingham with a B.S. degree in Accounting. He is a Registered Investment Advisor Representative of Money Management Services, Inc and holds the designations of CPA (Certified Public Accountant), AIF® (Accredited Investment Fiduciary), CTS™ (Certified Tax Specialist), and WMS (Wealth Management Specialist). As an advisor, Andrew specializes in comprehensive financial planning, estate tax planning, personal taxation planning, retirement income distribution planning, wealth accumulation, personalized portfolio management, and fiduciary investment management services.