tax breaksThe Protecting Americans from Tax Hikes Act of 2015 extends many consumer and business breaks.

Late last week, Congress passed the Protecting Americans from Tax Hikes Act of 2015 – yes, that’s the real name – finally reaching an agreement on extending tax breaks for 2015. President Obama signed the bill into law on Friday, approving nearly $700 billion of extended and permanent tax breaks.

Here are some of the business and consumer tax breaks that may impact you and your business immediately, or when you file 2015 tax returns over the next few months. This is just general information, so you’ll want to contact Bach, James, Mansour & Company to discuss your specific situation.

Small business tax breaks

  • Section 179 deduction. Now permanent, you can write off the cost of qualifying depreciable assets (new and used equipment, most software, etc.) in the first year. The 2015 cap is $500,000, and future caps will be indexed for inflation. In 2015, this also includes up to $250,000 of real property expenditures.
  • Bonus depreciation. Through 2017, this offers a 50% bonus for first-year depreciation on new business assets. The bonus is reduced to 40% in 2018, and 30% in 2019.
  • R&D tax credit. This tax credit is now permanent. Starting in 2016, certain small businesses can use the credit against alternative minimum tax (AMT) or payroll tax liability. Businesses under $50 million may qualify for the former, and businesses smaller than $5 million may qualify for the latter.

Consumer tax breaks

  • Option to deduct state and local taxes instead of income taxes. Now permanent, this gives you the option of deducting sales tax rather than income tax. Assuming that you don’t pay alternative minimum tax, this can be a big advantage if you don’t pay state income taxes. You may also receive a larger sales tax deduction if you’ve made major purchase, like a car, boat, or airplane, or leased a motor vehicle.
  • Tuition deduction. If your income is too high for the American Opportunity or Lifetime Learning credits, you still may be eligible for a $2,000-$4,000 deduction for “qualified tuition and related expenses,” such as tuition, books, and enrollment fees.
  • Energy efficient home improvement credit. Extended through 2016, you can claim a tax credit for up to $500 of qualifying energy saving improvements to your home, but the cap is reduced by any credits that you may have previously claimed.
  • Forgiven principal residence debt. Up to $2 million of cancelled mortgage debt from a principal residence can be treated as tax-free for 2015 and 2016. This helps people recover faster from difficult situations like foreclosure.
  • Charitable donations from IRAs. You can make up to $100,000 of donations to IRS-approved charities directly from your IRA. This will help those over 70 ½ who take minimum retirement distributions without tax. This tax break is now permanent, although you’ll need to make donations by December 31 to qualify in 2015.
  • Commuter deduction. Drivers and mass transit riders can deduct up to $250 per month in commuting costs.
  • K-12 educator expense deduction. Teachers and other educators can deduct up to $250 for school-related expenses. This deduction is now permanent.

Some other tax breaks originally set to expire in 2017 were also made permanent. These include the Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit (old national Hope scholarship).

Do you make hard cider or race horses?

If so, then the government also has you covered in the Protecting Americans from Tax Hikes bill. It also allows NASCAR track owners to more quickly write off renovations, and even offers a 10% credit for electric motorcycles.

Do you qualify? Please set up a meeting with your CPA

Please note that, like most government regulation, these tax breaks are complicated, and most have guidelines (like income requirements) for when they can and can’t be used. Please give us a call to discuss your specific situation and we can help guide you to the best decisions. In some cases, it may be better to make purchases or pre-pay expenses in 2015 before year-end.

Neal Bach, CPA