PATH Act Provides Planning Opportunities
After years of routine temporary extensions, Congress has made permanent a number of previously temporary tax breaks for individuals and businesses as well as extending others. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), signed into law by President Obama in December, opens the door to new planning opportunities.
Permanent extensions for individuals
Incentives for individuals extended permanently, and in some cases modified, by the PATH Act include:
- American Opportunity Tax Credit
- Deduction for certain expenses of elementary and secondary school teachers
- Parity for exclusion from income for employer-provided mass transit and parking benefits
- Deduction for state and local sales taxes
- Reduced earnings threshold for additional child tax credit
- Modification of the earned income tax credit
- Tax-free distributions from individual retirement plans for charitable purposes for individuals age 70 ½ and older
- Special rule for qualified conservation contributions
For some of the incentives, the modifications are significant. For example, the deduction for qualified expenses of elementary and secondary school teachers has been modified to include professional development expenses. Please contact our office for more details.
Permanent extensions for businesses
The PATH Act makes permanent, and in some cases modifies, many popular tax incentives for businesses, including:
- Research tax credit
- Enhanced expensing under Code Sec. 179
- Charitable deduction for contributions of food inventory
- Tax treatment of certain payments to controlling exempt organizations
- Extension of basis adjustment to stock of S corporations making charitable contributions of property
- Employer wage credit for employees who are active duty members of the uniformed services
- Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
- Treatment of certain dividends of regulated investment companies
- Exclusion of 100 percent of gain on certain small business stock
- Reduction in S corporation recognition period for built-in gains tax
- Subpart F exception for active financing income
- Temporary minimum low-income housing tax credit rate for non-federally subsidized buildings
- Military housing allowance exclusion for determining whether a tenant in certain counties is low-income
- Extension of RIC qualified investment entity treatment under FIRPTA
As with the individual incentives, some of the modifications to the business incentives are significant. The research tax credit is not only made permanent, it is enhanced for small businesses. Expensing under Code Sec. 179 is made permanent at generous dollar and investment limitations. Previous limitations for the employer credit for activated reservists are relaxed. For more details, please contact our office.
More incentives extended
The PATH Act did not leave out the rest of the traditional extenders. However, lawmakers did not make these remaining tax breaks permanent. Extended for several years (in some cases through 2019, in other cases through 2016) are:
- bonus depreciation,
- the Work Opportunity Tax Credit (WOTC),
- the higher education tuition and fees deduction,
- energy incentives, the Indian employment credit,
- special expensing rules for television and film productions, and more.
Because the extensions are not uniform, as mentioned, some tax breaks are extended through 2019 and others are extended through 2016, careful planning is vital.