With few days remaining before the end of the 2014, Congress passed and the president signed the Tax Increase Prevention Act of 2014. The legislation provides taxpayers relief for 2014 by retroactively extending nearly all tax provisions that expired at the end of 2013. Here are some of the key individual and business provisions renewed through December 31, 2014:
Individual Provisions
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Above-the-line deduction up to $250 for certain unreimbursed expenses of elementary and secondary school teachers
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Itemized deduction for state and local sales taxes in lieu of state and local income taxes
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Above-the-line deduction for qualified tuition and related expenses
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Up to $4,000 for taxpayers with adjusted gross income (AGI) of $65,000 or less ($130,000 for joint filers) or up to $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint filers)
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Premiums for mortgage insurance deductible as qualified interest
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Deduction phases out by 10 percent for each $1,000 of income exceeding $100,000 of AGI; the phase-out begins at $50,000 for married persons filing separate returns
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May exclude up to $2 million of cancelled or forgiven qualified principal residence indebtedness from taxable income if discharged before January 1, 2015
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Tax-free treatment of distributions to a qualifying charity from an IRA held by someone age 70½ or older of up to $100,000 per taxpayer for each year; for the 2014 tax year, a charitable donation from an IRA must have been made before January 1, 2015
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Exclusion of discharge of principal residence indebtedness from gross income for individuals
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Tax-free distributions from individual retirement accounts (IRA) for charitable purposes
Business Provisions
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Tax credit for research and experimentation expenses
o The research credit generally equals 20 percent of any excess of qualified research expenses for the tax year over a specific base amount, unless the taxpayer elected an alternative simplified research credit
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Internal Revenue Code Section 179 expensing up to $500,000 with $2 million phase-out
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Under Section 179, a taxpayer (other than estates, trusts and certain noncorporate lessors) can elect to deduct as an expense, rather than depreciate, up to a specified amount of the cost of new or used tangible personal property placed in service during the tax year in the taxpayer’s trade or business
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Fifty percent bonus depreciation and election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation
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To qualify for bonus depreciation, the original use of the asset must commence with the taxpayer; original use is the first use to which the property is put, whether or not that use corresponds to the taxpayer’s use of the property
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Fifteen-year straight-line cost recovery for qualified leasehold, restaurant and retail improvements
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An S corp generally is not subject to tax but instead passes through its income to its shareholders, who pay tax on their pro rata shares of the S corp’s income; where a C corporation elects to become an S corp, the S corp is taxed at the highest corporate rate (currently 35 percent) on all gains built in at the time of the election if the gain is recognized during a recognition period; absent any further extension of the reduced recognition period, beginning January 1, 2015, the recognition period is the 10-year period beginning with the first day of the first tax year for which the corporation was an S corp
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WOTC offers employers that hire members of certain targeted groups a credit against income tax of a percentage of first-year wages up to $6,000 per employee; however, the maximum WOTC for hiring a qualifying veteran can be as high as $9,600
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Fifty cents per gallon alternative fuel tax credit and alternative fuel mixture tax credit; this credit is commonly applicable for taxpayers who use propane or liquefied petroleum gas to fuel vehicles not required to be registered for highway use, e.g., forklifts; the credit applies to fuel sold or used before January 1, 2015
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Reduction in S corporation recognition period for built-in gains tax to five years
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Work Opportunity Tax Credit (WOTC)
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Alternative Fuel & Alternative Fuel Mixture Credit
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Indian Employment Tax Credit
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Accelerated depreciation for business property on Indian reservations
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Special rules for qualified small business stock
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Basis adjustment to stock of S corps making charitable contributions of property
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New Markets Tax Credit
Several expired provisions were not extended, including:
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Health care tax credit for displaced workers
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Plug-in electric vehicle credit
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Partial expensing of refinery equipment
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Energy-efficient appliance credit
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New York Liberty Zone tax-exempt bond financing
ABLE Accounts
The legislation also includes a new provision known as the Achieving a Better Life Experience (ABLE) Act, which allows states to establish tax-free savings accounts for certain expenses of severely disabled individuals, similar to state Internal Revenue Code Section 529 college savings plans. Specifically, the program allows families of disabled individuals to contribute up to $100,000 to an ABLE account. Withdrawals from the account will be tax-free if used to pay for qualified living expenses of the disabled, such as housing and education. In addition, account balances of $100,000 or less will not cause the disabled individual to lose eligibility for other benefits such as Supplemental Security Income.
While the extender legislation provides relief for 2014, these tax provisions expired at the end of 2014. Moving forward, Congress may choose to address tax provisions as part of tax reform, deciding at that time which temporary provisions should become permanent. Congress also could choose to develop yet another tax extender package, extending some or all of the provisions expired at the end of 2014.
Business and individual taxpayers should contact their tax advisor to discuss the effect of these provisions on their tax plan.
Tad Goodenbour, BKD, LLP, tgoodenbour@bkd.com
Robert Conner, BKD, LLP, rwconner@bkd.com
This article is for general information purposes only and is not to be considered as legal advice. This information was written by qualified, experienced BKD professionals, but applying this information to your particular situation requires careful consideration of your specific facts and circumstances. Consult your BKD advisor or legal counsel before acting on any matter covered in this update.
Article reprinted with permission from BKD, LLP, bkd.com. All rights reserved.
