With little time remaining in 2014, the President recently signed the Tax Increase Prevention Act of 2014 (TIPA). The “tax extender bill” addresses over 50 deductions and credits that expired at the end of 2013. The tax extensions are retroactive to January 1, 2014 and are short lived, expiring December 31, 2014. So while there isn’t much room for tax planning and guidance for 2015, taxpayers now have the final word on both business and individual tax implications for 2014.
Business Tax Extenders Highlights
- Bonus Depreciation – Allows an additional 50% deduction for qualifying property. The property must be new and placed in service before January 1, 2015. A taxpayer may elect out of bonus depreciation for any class of property in 2014.
- Section 179 Expensing – Allows for immediate deduction of the cost of qualified assets instead of depreciating the asset over an extended time period. The expense dollar limit is set at $500,000 with a $2 million dollar investment limit.
- Qualified Leasehold/Retail Improvement, Restaurant Property – Includes qualified property in the 15-year MACRS class for depreciation purposes. Qualifying property is also eligible for the Section 179 deduction and is subject to a $250,000 limit.
- Work Opportunity Tax Credit (WOTC) – Available to employers that hire military veterans and other qualified individuals. The credit is generally 40% in qualified first-year wages up to $6,000. The credit may be as high as $24,000 depending on other qualifying factors related to the employee.
- Research Tax Credit – Available for increasing business-related research activities. The credit is generally 20% (14% for the alternative simplified credit) for qualified research expenses.
Individual Tax Extender Highlights
- Home Mortgage Debt – An individual may exclude discharge of qualified principal residence indebtedness income of up to $2 million ($1 million for married individuals filing separately).
- Mortgage Insurance Premiums – An individual may treat qualified premiums as deductible principal residence interest and claim the interest as an itemized deduction. The deduction is phased out if a taxpayer’s adjusted gross income exceeds $110,000 ($55,000 for married individuals filing separately.)
- State and Local Sales Tax – An individual taxpayer may elect to claim an itemized deduction for State and Local sales taxes in lieu of the deduction for State and Local income taxes.
- Nontaxable IRA Transfers to Charitable Organizations – An individual 70½ or older can distribute up to $100,000 from an IRA to a qualified charity. The distribution is tax free to the individual and is not subject to the charitable contribution limits.
- Higher Education Expenses Deduction –An individual may claim an above the line deduction for qualified tuition and related expenses. The expenses can be for the taxpayer, spouse or dependents. The maximum deduction is $4,000 and is subject to income limitations.
With 2015 approaching it is beneficial to review the tax extenders that will affect your 2014 tax situation. RKL has an extensive group of tax professionals versed in the 50-plus tax extenders enacted with TIPA. If you have questions about the extenders highlighted above or any of the extenders included in the legislation, contact your RKL service provider or one of our local offices.
Contributed by Josie A. Parr, CPA, a supervisor in RKL’s Tax Services Group. Josie has more than 10 years experience in serving the tax planning and compliance needs of closely-held companies and individuals.