“It will take an act of Congress…” Well Congress has FINALLY acted and the provisions known as “tax extenders,” have passed both the House and Senate, just waiting on the President’s signature. I spend my morning hours combing the changes to the Tax Code. I am an early riser, waking up between 3:30 am and 4:30 am each morning. I start my day with a cup of coffee, and an email from my tax research software, spelling out what has changed in regards to taxes. I probably spend, sometimes two to three hours combing the changes on the lookout for what can benefit my clients, but not just that, I am just curious what has changed. My favorite changes come from the United States Tax Court. Everyone wants their day in court, and because of that, you can read some pretty funny cases. However, I digress. I have spent the last three days pouring over the provisions of the Tax Increase Prevention Act of 2014.
Contained in this article are the highlights of the legislation.
Tax cuts that have been extended for individuals are as follows:
Above The Line Deduction For Educators – A deduction $250 for supplies they purchase for their classrooms (Not nearly enough if you ask me).
Exclusion For Discharged Home Mortgage Debt – If you had your home foreclosed on, or had a short sale, typically you would have to claim the amount of the forgiven debt as income. With this extension, if you meet certain provisions, you can exclude it.
Increase In Excludable Employer-Provided Mass Transit And Parking Benefits – If your employer provides these fringe benefits, they are not taxable to you.
The Deduction Of Mortgage Insurance Premiums – You can deduct the amount you paid in PMI provided you income does not go above $110,000.
State And Local Sales Tax Deduction – Great for taxpayers that live in a state where there is no state income tax.
Above The Line Deduction For Higher Education Expenses – This is taken if you don’t qualify for the tax credit.
Nontaxable IRA Transfers To Eligible Charities
I want to take a moment to discuss nontaxable IRA transfers to charities. At age 70 ½ you have to take a Required Minimum Distribution (RMD) from your IRA, and pay income tax on it. The amount that you are required to take varies on a bunch of factors and is different for everyone. A lot of seniors don’t want to take these RMD’s, and find them burdensome. The extension of this law allows a taxpayer to donate these amounts to the charity of their choice instead of counting them as income. The amount is not counted as income, as I stated, and there is no deduction for the donation. This is a perfect situation for a lot of seniors.
Business provisions that have been extended are as follows:
Work Opportunity Tax Credit – A tax credit for businesses for hiring people from a targeted group.
Research Credit – This is a powerful credit issued to companies that do research and development.
Reduction in S-Corporation Recognition Period for Built-In Gains – If you were a C-Corporation at one point, there is a reduction in the recognition period for gains.
IRC §1244 Stock Extended – If you sold Sect. 1244 stock (stock of a closely held corporation) then 100% of your gain can be excluded.
First Year Bonus Depreciation Extended – 50 percent of the cost of brand new equipment can be written off in the first year.
Section 179 Depreciation Extended – A write off of $500,000 of any equipment put into use in 2014, provided you meet certain conditions.
Other notable extensions is the energy efficient tax credit. This is tax credit for energy efficient property that you purchased in 2014. Non-business Energy Property Credit has been extended. This is a tax credit for things like windows, insulation, etc.
Now you know.