The 2016 Tax Season Begins on January 19. What do you need to know to prepare?
The IRS announced that the 2016 tax season will begin on Jan. 19, as scheduled. The beginning of tax season marks the first day that the IRS will accept individual electronic returns and start processing traditional paper returns. We have mailed out individual Tax Organizers already and will soon be contacting our business clients with a list of items needed to begin preparing business tax returns. As information is gathered, please remember to utilize your secure client portal (link). It is a good idea to send information as you get it so that we can begin the process as soon as possible. Please call us anytime should you have any questions.
Congress has once again extended the “extenders,” a varied assortment of more than 50 individual and business tax deductions, tax credits, and other tax-saving laws which have been on the books for years but which technically are temporary because they have a specific end date. This package of tax breaks has repeatedly been temporarily extended for short periods of time (e.g., one or two years), which is why they are referred to as “extenders.” Most of the tax breaks expired at the end of 2014, but now, in the recently enacted Protecting Americans from Tax Hikes Act of 2015 (i.e., the 2015 PATH Act), the extenders have been revived and extended once again, but this time Congress has taken a new tack. Instead of just rolling the package of provisions over for a year or two, it actually made some of the provisions permanent and extended the remaining provisions for either five or two years, while making significant modifications to several of the provisions.
Some of the more popular extended provisions for individuals include:
- tax credits for low to middle wage earners that were originally enacted as part of the 2009 stimulus package and were slated to expire at the end of 2017; made permanent; these tax credits are:
- the American Opportunity Tax Credit, which provides up to $2,500 in partially refundable tax credits for post-secondary education,
- eased rules for qualifying for the refundable child credit, and
- various earned income tax credit (EITC) changes;
- the $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom; made permanent; also modified, beginning in 2016, to index the $250 cap to inflation and include professional development expenses;
- the exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income; extended through 2016; the new law also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, if the discharge is pursuant to a binding written agreement entered into in 2016;
- the deduction for mortgage insurance premiums deductible as qualified residence interest; extended through 2016;
- the option to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for State and local income taxes; made permanent;
- the provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70 1/2 or older; made permanent.
Some of the more popular extended business credits and special depreciation and expensing rules include:
- the research credit; made permanent; additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be used by certain even smaller businesses against the employer’s portion of the Social Security portion of the employer’s payroll tax (i.e., FICA) liability;
- 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements; made permanent;
- 50% bonus depreciation; extended for property placed in service during 2015 through 2019 (but 2016 through 2020 for certain property with a longer production period and certain aircraft); the 50% rate is phased down to 40% for property placed in serviced during 2018 (but 2019
- increase in elective business expensing (up to $500,000 annual write-off of eligible business property costs that is phased out once those costs exceed $2,000,000 for the year) is made permanent; made permanent too is the allowance of expensing for computer software and qualified real property (certain leasehold improvement, retail improvement and restaurant property; the $500,000 and $2,000,000 limits are indexed for inflation for tax years beginning after 2015 ; expensing is allowed for air conditioning and heating units placed in service in tax years beginning after 2015; the $250,000 cap on the expensing of qualified real property is eliminated for tax years beginning after 2015; the election and the specifics of the election are made revocable;
- the exclusion of 100% of gain on certain small business stock; made permanent; the new law also permanently extends the rule that eliminates such gain as an AMT preference item;
- the reduction in S corporation recognition period for built-in gains tax; made permanent.