New Developments in the Tax Code
De minimis business expense safe harbor for certain taxpayers raised to $2,500
Final tangible property regulations permit businesses to elect to expense their outlays for “de minimis” business expenses. If the taxpayer is eligible for the de minimis safe harbor election, and chooses it, an amount paid to acquire or produce any eligible unit of property (or any eligible material or supply) is deducted in the year paid or incurred. Assets expensed under the de minimis safe harbor election may be deducted in the year of purchase, assuming that the costs otherwise qualify as ordinary expenses, and that the costs don’t have to be capitalized under the UNICAP rules. The IRS increased the de minimis safe harbor limitation for a taxpayer without an AFS (applicable financial statement) from $500 to $2,500. (The limit for taxpayers with an AFS remains at $5,000.) This increase is effective for costs incurred during tax years beginning on or after Jan. 1, 2016, but use of the new threshold won’t be challenged in tax years prior to 2016.
Extended deadlines for Affordable Care Act (ACA) information returns
Beginning with calendar year 2015, health insurance issuers, certain employers, and others that provide “minimum essential coverage” to individuals must file information returns with the government and furnish related information statements to covered individuals. Entities that are only subject to the information reporting requirements file Forms 1094-B, Transmittal of Health Coverage Information Returns, and 1095-B, Health Coverage. In addition, applicable large employers (generally, employers with at least 50 full-time employees) must report to the IRS information about the health care coverage, if any, they offered to full-time employees (i.e., an employee who is employed on average for at least 30 hours of service per week). This reporting is done on Form 1094-C, Transmittal of Employer Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer Provided Health Insurance Offer and Coverage.
Originally, the ACA information returns were required be filed with IRS no later than February 29, 2016 (March 31, 2016, if filed electronically) and employers could apply for a 30-day extension of the filing deadline. In addition, employers were originally required to provide 2015 ACA statements to employees no later than February 1, 2016.
Recently, the IRS has extended the due date (1) for furnishing to individuals 2015 Forms 1095-B and 1095-C from February 1, 2016, to Mar. 31, 2016, and (2) for filing with IRS 2015 Forms 1094-B, 1095-B, 1094-C, and Form 1095-C from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016, if filing electronically. In view of these extensions, the provisions regarding automatic and permissive extensions of time for filing information returns and permissive extensions of time for furnishing statements will not apply to the extended due dates.
Revised due date for FinCEN report for Foreign Bank and Financial Accounts
FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), is used to report a financial interest in or signature authority over a foreign financial account. For tax years ending on or before December 31, 2015, the FBAR must be received by the Department of the Treasury on or before June 30th of the year immediately following the calendar year being reported. The June 30 filing date may not be extended.
For tax years beginning after December 31, 2015, Treasury is directed to modify appropriate regulations to provide that the due date of FBAR will be April 15 with a maximum extension for a 6-month period ending on October 15 and with provision for an extension. For any taxpayer required to file Form 114 for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Treasury Secretary.
PATH Act Recap
As we reported in a news e-blast back in late December, the PATH act passed a multitude of advantageous tax provisions. The act 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, most of which had been expired since the end of 2014. The act also made permanent more than a dozen individual and business extenders, as well as other miscellaneous tax rules.
The following list of extenders is not all-inclusive, but are those that might be of interest to you.
- The enhanced Child Tax Credit, permanently extended the $1,000 credit, subject to phase out amounts.
- The enhanced American Opportunity Tax Credit, permanently extended the $2,500 credit for four years of post-secondary education, subject to phase out amounts.
- The enhanced Earned Income Tax Credit, permanently extended the EITC amount of 45% for those with three or more children.
- The deduction for certain expenses of elementary and secondary schoolteachers, permanently extended beginning in 2016 the $250 deduction per year of expenses, indexed for inflation.
- The deduction of state and local general sales taxes, permanently extended.
- The liberalized rule for contributions of appreciated real property made for conservation purposes.
- Tax-free distributions from individual retirement plans for charitable purposes. Effective for distributions made in tax years beginning after Dec. 31, 2014, the Act retroactively revives and permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year.
- Modification of the exclusion of mortgage debt discharge, extended for debts discharged before January 1, 2017.
- Mortgage insurance premiums treated as qualified residence interest, retroactively extended through 2016.
- The above-the-line deduction for qualified tuition and related expenses, retroactively extended through 2016 for $4,000 of qualified tuition and related expenses for higher education.
- The Research & Development credit with certain small business enhancements, permanently extended.
- The exclusion of 100% of gain on certain small business stock, permanently extended.
- Reduction in S corporation recognition period for built-in gains tax, permanently extended to 5-year period.
- The Work Opportunity Tax Credit, modified and enhanced for employers who hire long-term, unemployed individuals (unemployed for 27 weeks or more) to 40 percent of the first $6,000 of wages.
- 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements, permanently extended for property placed in service after December 31, 2014.
- Bonus depreciation, at 50% for 2015-2017 and phased down to 40% in 2018 and 30% in 2019. The Act also provides that:
- After 2015, additional first-year depreciation is allowed for qualified improvement property without regard to whether the improvements are property subject to a lease, and there is no requirement that the improvement must be placed in service more than three years after the date the building was first placed into service.
- Increased expensing limitations and treatment of certain real property as Section 179 property; changes to Section 179 are as follows:
- The $500,000 expensing limitation and $2 million phase-out amounts are retroactively extended and made permanent.
- For any tax year beginning after 2015, both the $500,000 and $2 million limits are indexed for inflation.
- The rule that allows expensing for computer software is retroactively extended and made permanent.
- For tax years beginning after Dec. 31, 2014, an expensing election or specification of property to be expensed may be revoked without the IRS’s consent. The ability to revoke a Code Sec. 179 election without IRS consent is made permanent.
- Real property up to $250,000 is eligible to be expensed for tax years beginning before 2016.
- For tax years beginning after Dec. 31, 2015, expensing of qualified real property is made permanent and the $250,000 expensing limitation with respect to qualifying real property is eliminated.
- For tax years beginning after Dec. 31, 2015, air conditioning and heating units are eligible for expensing.