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Recent Tax Law Changes January 2016

The recently passed “PATH” act made permanent the following deductions that had been renewed on a year by year basis.

  • State and local sales taxes, of particular importance to Washington residents.
  • Expensing provisions commonly referred to as bonus and section 179 depreciation. The Act restores the $500,000 expensing limitation.
  • From 2016 to 2019, certain interior building improvements to nonresidential realty quality for bonus depreciation (50% in 2016) instead of the statutory 39 year life.
  • The research and development credit was made permanent and also modified so that a limited portion applies to payroll taxes (for small companies only). Formerly it only applied to income taxes. It also offsets alternative minimum tax starting in 2016, again for certain small companies.
  • The work opportunities tax credit has been extended and expanded to include those unemployed for more than 27 consecutive weeks.
  • Reduction in the recognition period for S Corporation built in gains. Now it is permanently five years.
  • S Corporation charitable asset contributions reduce shareholder basis by the basis of the property.
  • Tax free IRA distributions to charities for those over 70 ½.
  • The enhanced child tax credit
  • Deduction for expenses of elementary and secondary school teachers.
  • The “new markets” tax credits
  • Mortgage debt forgiveness exclusion
  • Mortgage insurance premium deduction
  • Qualified tuition and related expenses deduction
  • Energy efficiency tax credits including the residential energy credits, the wind energy facilities credit and the solar investment tax credit/credit for residential solar property.
  • Penalties for not filing 1099’s have been increased significantly, and the ability to request abatement on the basis of a clean compliance history has been removed. Penalties per 1099 can now reach $1000.

Other changes include:

  • In order to help reduce identity theft, W-2’s will be due by January 31 instead of February 28. Previously the IRS paid refunds based on W-2 amounts reported by taxpayers without matching them to a filed W-2.
  • Only the last 4 digits of your SSN will appear on your W-2.
  • The statute of limitations, which generally was three years, has been extended to six years in cases where the taxpayer omits greater than 25% of gross income, or if basis is overstated.

In a separate action, the IRS extended the due date for providing employees with forms 1095-B and 1095-C to March 31, 2016 for large employers (50 or more). Forms 1095 report medical insurance coverage.

And due to an unknown holiday affecting only Federal employees in Washington DC, taxpayers will have until Monday, April 18 to file their tax returns this year.