Experienced Small
Business Accountant – The following is a summary of important tax
developments that have occurred in the past three months that may affect you,
your family, your investments, and your livelihood. Please call us for more
information about any of these developments and what steps you should implement
to take advantage of favorable developments and to minimize the impact of those
that are unfavorable.
New tax legislation. While in the past, Congress
has been chastised by some for being gridlocked, there was a flurry of new laws
containing tax provisions in the last quarter of the year:
The Protecting Americans From Tax Hikes (PATH)
Act (P.L. 114-113, 12/18/2015) retroactively extended 50 or so
taxpayer-favorable tax “extenders”—temporary tax provisions that are routinely
extended by Congress on a one- or two-year basis, that had been expired since
the end of 2014. It made permanent more than a dozen of the extenders
(including the enhanced child tax credit, American opportunity tax credit, and
earned income tax credit; parity for exclusion from income for
employer-provided mass transit and parking benefits; the deduction of State and
local general sales taxes; the research credit; and 15-year straight-line cost
recovery for qualified leasehold improvements, qualified restaurant buildings
and improvements, and qualified retail improvements). It also contained a delay
in the Affordable Care Act's 2.3% excise tax on medical devices and provisions
on Real Estate Investment Trusts (REITs), IRS administration, the Tax Court and
numerous other rules.
The Consolidated Appropriations Act (P.L.
114-113, 12/18/2015) included a delay of the Affordable Care Act's 40% excise
tax on high cost employer-sponsored health coverage (i.e., the so-called
“Cadillac” tax) and a one-year suspension of the annual fee on health insurance
providers, in addition to the extension and phaseout of credits for wind
facilities, the election to treat qualified facilities as energy property, the
solar energy credit, and qualified solar electric and water heating property credits.
It also contained a provision that gives independent oil refiners a favorable
way of accounting for transportation costs in calculating their domestic
production activities deduction.
The Fixing America's Surface Transportation
(FAST) Act (P.L. 114-94, 12/4/2015) requires the Secretary of State to deny a
passport (or renewal of a passport) to a seriously delinquent taxpayer (i.e.,
generally, a taxpayer with any outstanding debt for Federal taxes in excess of
$50,000). It also requires the IRS to enter into qualified tax collection
contracts with private debt collectors for the collection of inactive tax
receivables and repealed a recently enacted provision that provided for a
longer automatic extension of the due date for filing Form 5500.
The Bipartisan Budget Act of 2015 (P.L. 114-74,
11/2/2015) eliminated the TEFRA unified partnership audit rules (so-called
because they were introduced in the Tax Equity And Fiscal Responsibility Act of
'82) and the electing large partnership rules, and replaced them with
streamlined partnership audit rules. The new rules are effective for returns
filed for partnership tax years beginning after Dec. 31, 2017, but taxpayers
can elect to apply them earlier.
The Protecting Affordable Coverage for Employees
Act (P.L. 114-60, 10/7/2015) revised the non-tax definition of small and large
employers for purposes of the Affordable Care Act. This, however, also ended up
modifying a benefits-related tax rule under Code Sec. 125(f)(3) permitting
certain qualified health plans to be offered through cafeteria plans.
Tax season begins. Despite the last minute,
year-end tax legislation described above, the IRS announced that tax season
will begin as scheduled on Tuesday, January 19, 2016. The IRS will begin
accepting individual electronic returns and paper returns on that date. The IRS
noted that many tax software companies began accepting tax returns earlier in
January and will submit them to the IRS on or after January 19. The IRS also
noted that there is no advantage to people filing tax returns on paper before
January 19, instead of waiting for e-file to begin.
Standard mileage rates down for 2016. The
optional mileage allowance for owned or leased autos (including vans, pickups
or panel trucks) decreased by 3.5¢ to 54¢ per mile for business travel after
2015. This rate can also be used by employers to provide tax-free
reimbursements to employees who supply their own autos for business use, under
an accountable plan, and to value personal use of certain low-cost
employer-provided vehicles. The rate for using a car to get medical care or in
connection with a move that qualifies for the moving expense decreased by 4¢ to
19¢ per mile.
Rules for ABLE accounts are liberalized. For tax
years beginning after December 31, 2014, States can create “Achieving a Better
Life Experience” (ABLE) programs, which provide for a new type of
tax-advantaged account for disabled persons to save for disability-related
expenses. In new guidance, having determined that certain requirements set out
in recently issued proposed regulations would impose substantial administrative
and cost burdens, the IRS has eliminated or significantly modified these
requirements. Under the guidance, (1) ABLE programs aren't required to
establish safeguards to categorize distributions (including identifying amounts
distributed for housing expenses); however, designated beneficiaries will still
need to categorize distributions to determine their federal income tax obligations;
(2) ABLE programs will not be required to request the taxpayer identification
number of contributors to the ABLE account at the time when the contributions
are made, if the program has a system in place to reject contributions that
exceed the annual contribution limits; and (3) a certification under penalty of
perjury that the individual (or the individual's agent under a power of
attorney or a parent or legal guardian of the individual) has a signed
physician's diagnosis, and that the signed diagnosis will be retained and
provided to the ABLE program or the IRS upon request, is adequate to satisfy
certification requirements.
In addition, the PATH Act eliminated the
residency requirement for ABLE programs (i.e., that the accounts could only be
located in the State of residence of the beneficiary). Now, individuals setting
up ABLE programs can choose the State program that best suits their needs.
Affordable Care Act information reporting
deadlines are extended. Under the Affordable Care Act, insurers, self-insuring
employers, and certain other providers of minimum essential coverage must file
information returns with the IRS and furnish certain information to
individuals. Information reporting is also required for applicable large
employers (ALEs). In guidance, the IRS has extended the due dates for certain
2015 information reporting requirements under the Affordable Care Act. The IRS
has also provided guidance to individuals who, as a result of these extensions,
might not receive a Form 1095-B or Form 1095-C allowing them to establish that
they had minimum essential coverage by the time they filed their 2015 tax
returns.
Innocent spouse relief. The IRS issued proposed
regulations that would make a number of significant changes to the existing
innocent spouse rules. In general, a joint filer may obtain relief: (1) where
the taxpayer did not have actual or constructive knowledge of the
understatement of tax on a return; or (2) if no longer married to the other
joint filer, by limiting his liability to his allocable portion of any
deficiency; or (3) if ineligible for relief under the above two provisions,
where, in view of all the facts and circumstances, it would be inequitable to
hold the joint filer liable for any unpaid tax or any deficiency. Under the
proposed regulations, when a taxpayer makes a request for relief on Form 8857,
Request for Innocent Spouse Relief, he would not be required to elect or
request relief under a specific provision of Code Sec. 6015. The proposed
regulations would also provide guidance on the judicial doctrine of res
judicata (i.e., when a prior court proceeding will be binding on the spouse)
and detailed rules on credits and refunds in innocent spouse cases.
Health coverage tax credit. The IRS provided
guidance on claiming the health coverage tax credit (HCTC) for tax years 2014
and 2015, with particular emphasis on circumstances in which the taxpayer also
qualifies for the Code Sec. 36B premium tax credit. Eligibility for the HCTC is
limited to displaced workers receiving allowances under the Trade Adjustment
Assistance program and Pension Benefit Guaranty Corporation pension recipients
who are age 55 or older. For months in tax years beginning in 2014 or 2015, an
individual enrolled in a qualified health plan who is both an eligible
individual for purposes of the HCTC and the premium tax credit in a month may
claim either credit for the month. But once the HCTC election is made for an
eligible coverage month, the individual is ineligible to claim the premium tax
credit tor the same coverage in that coverage month and for all subsequent
months in the tax year for which the individual is eligible for the HCTC.
De minimis expensing safe harbor under
capitalization regulations is increased. As an alternative to the general
capitalization rule, regulations permit businesses to elect to expense their
outlays for “de minimis” business expenses. The election is allowed where the
amount paid for the property doesn't exceed $5,000 per invoice (or per item as
substantiated by the invoice) if the taxpayer has an applicable financial
statement (AFS), but a $500 limit applies where the taxpayer does not have an
AFS. In new guidance, the IRS has increased, from $500 to $2,500, the de
minimis safe harbor limit for taxpayers that don't have an AFS. The increase
applies for costs incurred during tax years beginning on or after January 1,
2016, but use of the new limit won't be challenged by the IRS in tax years
prior to 2016.
Deduction safe harbor for remodeling costs of
retail and restaurant businesses. Taxpayers are generally allowed to deduct all
the ordinary and necessary expenses paid or incurred in carrying on any trade
or business, including repair and maintenance costs, but must generally
capitalize amounts paid to acquire, produce, or improve property. Determining
how these rules apply to the various components of a remodelling project can be
a complex and difficult undertaking. In new guidance, the IRS has provided a
safe harbor method that taxpayers engaged in the trade or business of operating
a retail establishment or a restaurant may use to determine whether costs paid
or incurred to refresh or remodel a qualified building are deductible or must
be capitalized. Under the safe harbor, a qualified taxpayer treats 75% of its
qualified costs paid as deductible and 25% as expenses that must be
capitalized.
If you have any questions on this topic or would like to
discuss some planning strategies with me, please call. I look forward to hearing from you.
Click this link to view our YouTube video http://youtu.be/EYJdQtbPZAI
Amare
Berhie, Senior Tax Accountant
(651)
621-5777
