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The PATH Act

Monday, January 4th, 2016 | Uncategorized | No Comments

Simplifying Tax Planning

Congress passed and the President signed the “Protecting Americans from Tax Hikes” Act (PATH Act) on December 18, 2015. After years of dealing with the uncertainty in tax planning, we now have the certainty of knowing many important tax details going forward.

For individual taxpayers, highlights include:

» The act makes permanent the option to claim an itemized deduction for state and local general sales taxes in lieu of an itemized deduction for state and local income taxes. This is important for Tennessee residents, as Tennessee is primarily financed by sales tax revenues.

» For taxpayers who are age 70½ or older, the act retroactively revives and permanently extends the ability of individuals to exclude from gross income charitable distributions from IRAs of up to $100,000 per year. A strategy under this provision is to have your required minimum distribution made directly to the charitable organization to exclude it from income.

» For elementary and secondary school teachers, the $250 above the line deduction was made permanent. The $250 amount is also indexed for inflation.

» The American Opportunity Tax Credit was made permanent. The AOTC is up to $2,500 for qualified education expenses the first four years of post-secondary education. The AOTC was set to expire after 2017.

» The non-business energy tax credit was extended for two years through 2016. The credit has a lifetime limit of $500 for qualified windows, doors, and other qualified building envelope components. The credit is 10% of the qualified installation. Consult your contractor or home improvement store for a qualifying certification.

» Mortgage insurance premiums in connection with acquisition indebtedness on a taxpayer’s qualified residence whether paid or accrued are now deductable through 2016. This helps those buyers who purchased a home with a low down payment.

» For businesses, the most significant changes deal with the expensing of capital purchases. One of the favorite planning tools in recent years has been the increased section 179 expensing of capital purchases. On January 1, 2015, the section 179 limit reverted back to $25,000. The PATH Act retroactively extends and makes permanent the $500,000 expensing limitation and $2 million phase-out. This now allows us to use the $500,000 as a planning tool going forward. Also, for tax years beginning after 2015, the $500,000 and $2 million limits are indexed for inflation.

To learn more about how the PATH Act may potentially impact you, please call our office at (865) 986-4035.

Any accounting, business, or tax advice contained in this article is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Allen A. Scott, CPA
Professional Tax & Accounting Service
111 East Broadway
Lenoir City, TN 37771
(865) 986-4035

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