Experienced Tax
Accountant – Congress
finally took action in late December and passed a tax extender bill formally
known as the Protecting Americans from Tax Hikes Act of 2015 (PATH), which was
then signed into law. Retroactive to January 1, 2015, many tax provisions were
made permanent while others were extended through 2016 or 2019. Let's take a
look at some of the tax provisions most likely to affect taxpayers when filing
their 2015 tax returns.
1. Teachers' Deduction for Certain Expenses
Primary and secondary school teachers buying school supplies
out-of-pocket may be able to take an above-the-line deduction of up to $250 for
unreimbursed expenses. An above the line deduction means that it can be taken
before calculating adjusted gross income. This deduction was made permanent and
indexed for inflation.
2. State and Local Sales Taxes
The deduction for state and local sales taxes was made
permanent by PATH. Taxpayers that pay state and local sales tax can deduct the
amounts paid on their federal tax returns (instead of state and local income
taxes)--as long as they itemize.
3. Mortgage Insurance Premiums
Mortgage insurance premiums (PMI) are paid by homeowners
with less than 20 percent equity in their homes. These premiums were deductible
in tax years 2013, 2014, and now, once again in 2015. This deduction was
extended through 2016. Mortgage interest deductions for taxpayers who itemize
are not affected.
4. Exclusion of Discharge of Principal Residence
Indebtedness
Typically, forgiven debt is considered taxable income in the
eyes of the IRS; however, this tax provision has been extended through 2016,
allowing homeowners whose homes have been foreclosed on or subjected to short
sale to exclude up to $2 million of canceled mortgage debt. Also included are
taxpayers seeking debt modification on their home.
5. Distributions from IRAs for Charitable Contributions
Taxpayers who are age 70 1/2 or older can donate up to
$100,000 in distributions from their IRA to charity. Some people do not want to
take the mandatory minimum distributions (which are counted as income) upon
reaching this age and instead can contribute it to charity, using it as a
strategy to lower income enough to take advantage of other tax provisions with
phaseout limits. This deduction was made permanent by PATH.
6. Parity for Mass Transit Fringe Benefits
This tax extender allows commuters who used mass transit in
2015 to exclude from income (up to $250 per month), transit benefits paid by
their employers such as monthly rail or subway passes, making it on par with
parking benefits (also up to $250 pre-tax). Like many other tax extenders, this
provision was made permanent.
7. Energy Efficient Improvements (including Appliances
This tax break has been around for a while, but if you made
your home more energy efficient in 2015, now is the time to take advantage of
this tax credit on your 2015 tax return. The credit reduces your taxes as
opposed to a deduction that reduces your taxable income and is 10 percent of
the cost of building materials for items such as insulation, new water heaters,
or a wood pellet stove.
Note: This tax is cumulative, so if you've taken the credit
in any tax year since 2006, you will not be able to take the full $500 tax
credit this year. If, for example, you took a credit of $300 in 2013, the
maximum credit you could take this year is $200.
8. Qualified Tuition and Expenses
The deduction for qualified tuition and fees, extended
through 2016, is an above-the-line tax deduction, which means that you don't
have to itemize your deductions to claim the expense. Taxpayers with income of
up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to
$4,000 in expenses. Taxpayers with income over $130,000 but under $160,000
(joint) and over $65,000 but under $80,000 (single) can take a deduction up to
$2,000; however, taxpayers with income over those amounts are not eligible for
the deduction.
Qualified education expenses are defined as tuition and
related expenses required for enrollment or attendance at an eligible
educational institution. Related expenses include student-activity fees and
expenses for books, supplies, and equipment as required by the institution.
9. Donation of Conservation Property
Also made permanent was a tax provision that allowed
taxpayers to donate property or easements to a local land trust or other
conservation organization and receive a tax break in return. Under this tax
provision, deductions of qualified conservation contributions up to 50 percent
of a taxpayer's contribution base (100 percent for qualified farmers and
ranchers) are allowed.
10. Small Business Stock
If you invested in a small business such as a start-up
C-corporation in 2015, consider taking advantage of this tax provision on your
2015 tax return. If you held onto this stock for five years, you can exclude
100 percent of the capital gains--in other words, you won't be paying any
capital gains. This deduction was made permanent by PATH.
If you're wondering whether you should be taking advantage
of these and other tax credits and deductions, please call today.
Amare
Berhie, Senior Tax Accountant
(651)
300-4777, (612)424-1540, (651) 621-5777
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