At the tail end of 2015, President Obama signed legislation for the Protecting Americans Against Tax Hikes Act, known as the PATH Act of 2015. This legislation was designed to provide or extend some provisions while making others permanent for hard-working American families, college students, charities, small business and enterprises on the forefront of innovation. Many working Americans will find it easier to attain financial stability due to the numerous tax relief incentives that are included in the PATH Act.
The PATH Act of 2015 made the Research and Development Tax Credit permanent for the first time in the credit’s 34 year history. The benefits from research and tax credits include:
- Small business with average annual sales of less than $50 million can claim the credit against Alternative Minimum Tax (AMT).
- Some start-ups can offset payroll taxes with the credit, which cannot exceed $250,000 for up to five years.
In addition, Section 179 was made permanent under the PATH Act of 2015. Here are the important guidelines to follow for tax benefits:
- Deduction limit is $500K and is good for both new and used equipment, which must be financed/purchased and put to use by the end of the year.
- Spending cap on equipment is $2 million before the available deduction begins getting reduced on a dollar for dollar basis.
- Bonus depreciation is 50% for 2015 and available only on new equipment. This benefit will be phased out eventually and incrementally reduced yearly until 2019.
- Qualified leasehold improvement property will continue to be eligible for 15-year MACRS depreciation.
Another permanent tax incentive for small businesses is the reduced 5-year built-in-gains period for C corporations electing S corporation status. The Act makes permanent provisions allowing for exclusion of tax gain on sale of Qualified Small Business Stock (QSBS).
For individual taxpayers, the PATH Act of 2015 offers a few tax benefits as well. Important highlights include:
- Itemized Deduction of State and Local Sales Taxes: taxpayers may take an itemized deduction for state and local sales taxes instead of deducting state income taxes.
- Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit: these refundable credits are now returned to their previous levels and, in some cases, the value of the credits has increased by either increasing the income level that the credits phase-out at or by decreasing the earned income amount needed to receive the credit. The credits allow low-income and middle-class taxpayers to eliminate much of their tax liability and in many cases to receive refunds.
- Qualified Mortgages: the exclusion of cancellation of indebtedness a principal resident mortgage is extended through 2016 as is the deductibility of qualified mortgage insurance premiums.
There are a number of other areas affected by the PATH Act of 2015 such as REIT reporting reforms, filing for ITINs, energy tax incentives, and more intricate tax provisions for both individual and business taxpayers. Because many of the new requirements provide numerous opportunities for people to enjoy significant tax savings on their 2015 income tax returns, hiring a CPA firm with a thorough understanding of PATH can potentially save you and business thousands on your 2015 and future tax return filings. We at Mazur and Associates Certified Public Accountants and Business Advisors, PC are uniquely qualified to guide you to the highest possible tax savings allowed by the PATH Act of 2015! Give us a call at (732) 936-1230 to set up an appointment today.