President Signs the Protecting Americans from Tax Hikes Act of 2015
On December 18, 2015, the President signed the Protecting Americans from Tax Hikes Act of 2015 (“PATH”). PATH contains numerous provisions that are beneficial for businesses and individuals. Many of these provisions were previously temporary or had expired and have now either been made permanent, extended for 2 years through 2016, or extended for 5 years through 2019. Highlights of the significant provisions of PATH are as follows:
A. Significant Business Provisions:
- S Corporation Built in Gains Tax. When a C corporation makes an election to be taxed as an S corporation, there is a period during which the corporation will be subject to the corporate level tax on a disposition of assets. The period has now been permanently decreased from 10 to 5 years.
- Section 179 Expensing. Up to $500,000 of the purchase price of certain business property can be currently deducted instead of capitalized, but the deduction is subject to a phase-out to the extent that more than $2,000,000 of property was put into service during the year. In the future, the deduction limit and phase-out amounts are adjusted for inflation. Special rules that allow expensing for computer software and qualified real property are permanently extended.
- Accelerated Depreciation. Qualified leasehold, retail and restaurant improvements can now be depreciated over a 15 year period (reduced from 39 years).
- Research and Development Credit. The research and development tax credit that expired at the end of 2014 has been permanently extended. Furthermore, in 2016 and thereafter, eligible small businesses (those with $50,000,000 or less in gross receipts) may claim the credit against their alternative minimum tax liability. The credit can also be used by some small businesses against payroll taxes.
B. Significant Individual Provisions:
- Gain Exclusion for Small Business Stock. The exclusion of 100% of the gain from the sale of “qualified small business stock” held by a non-corporate taxpayer for a 5 year period has been made permanent.
- Tax-free IRA Distributions to Charities. The exclusion from gross income for charitable distributions (up to $100,000 annually) made directly from IRAs of individuals who are at least 70½ years old, which expired after 2014, is now permanent.
- Conservation Easements. The deduction for contributions of conservation easements is increased from 30% to 50% of adjusted gross income. This deduction expired after 2014, but is now permanent.
- Deduction for State and Local Sales Taxes. The option to claim an itemized deduction for state and local sales taxes in lieu of state and local income taxes has been permanently extended. A taxpayer may either deduct the actual amount of sales tax paid in the tax year or alternatively an amount prescribed by the IRS.
C. Other Miscellaneous Provisions:
- Cadillac Plan Excise Tax. The excise tax imposed by ACA has been deferred until 2020.
- Section 529 Plan Distributions. Computer equipment and similar technologies are now considered qualified expenses.
- Certain Due Dates. Effective for tax returns filed after the enactment of PATH (i.e. 2016 returns), the due date for Forms W-2, W-3 and 1099-MISC is now on or before January 31 of the following calendar year.