The end of 2015 saw, as years in past, the passing of several retroactive tax laws. For the first time in several years, the legislation was also proactive and made tax law changes that carry into future years. This will hopefully make tax planning a bit easier as we can focus on the laws and not the uncertainty of what the laws will be.
For businesses there are several items which will affect many businesses. The two biggest changes relate to asset purchases. The expensing of assets (also known as section 179) has been made permanent and will be increased each year based on inflation. Federal bonus depreciation (the ability to take a large depreciation deduction in the first year) has been extended through 2019 although it is set to decrease from the current 50% deduction in 2018 and 2019. This will give businesses the chance to prepare for some potential major tax impacts but also, as the end nears, may help to spur additional purchases prior to 2018 and 2019. Another important tax change is the postponement of the Affordable Care Act “Cadillac tax”. This was set to start for 2016 but has been postponed until 2020 as many legislators try to dismantle the bill. This excise tax would have affected many business owners with higher end health coverage. Although there are many more business changes, the last one we will touch on is the Research & Development credit. This credit has been made permanent and was also revised to now offset not just ordinary tax liability. This will make the credit available to many more taxpayers and will hopefully spur more business investments.
On the individual side of the table, several changes were also made in an effort to help the ordinary taxpayer. The American Opportunity credit (for college education) was finally made permanent, increased to $2,500 and some limitations removed to help make it available to more taxpayers. The college savings plans were also modified to allow for proceeds to be taken out and redeposited within 60 days tax-free (much like an IRA account does) and has added the ability to withdrawal funds for computers and other technology as a deemed “qualified education expense”. The ability for a taxpayer to gift amounts from his/her IRA directly to a charitable organization and avoid taxes was made permanent as well, a big win for all those non-profits trying to secure funds. Finally, a temporary “win” for taxpayers, comes with the 2 year extension of the ability to deduct private mortgage insurance on your home as an interest expense and the ability to exclude principal residence foreclosure debt cancellation from income.
These are a few of the critical changes to the current (and future) tax code which we can take advantage of to minimize taxes. There are many other changes that may affect your personal situation so now is the time to act. Let us at Reilly, Penner, & Benton review your unique situation and help you use the new changes to your advantage.