Tax Extender Update - DoctorsManagement Tax Extender Update - DoctorsManagement

NEWSFLASH: Tax Extender Update

By Blake King, CPA, MAcc, CVA | December 19, 2014

As has become the trend over the last few years, Congress waited until the last minute to extend tax provisions for 2014. On December 16, the Tax Increase Prevention Act of 2014 (TIPA) was passed and is expected to be signed by the President shortly. The law extends many provisions upon which taxpayers have come to rely.

The most important of these for small businesses is the extension of Section 179 expensing and Bonus Depreciation. Without this law, bonus depreciation would have expired in 2014 and Section 179 limits would have decreased to ~$25,000. Under TIPA, Section 179 once again increases to $500,000 and bonus depreciation allows for a 50% deduction in year one. While we never recommend purchasing equipment solely for a tax deduction, if you have been waiting on these laws to pass to purchase equipment that you need, please make sure it is purchased and placed in service by December 31.

On December 16, the Tax Increase Prevention Act of 2014 (TIPA) was passed and is expected to be signed by the President shortly. The law extends many provisions for both businesses and individuals. For small businesses, two of these provisions can have a significant impact: Section 179 expensing and Bonus Depreciation.

Section 179 allows for a taxpayer to expense the cost of an asset in the year of purchase. Without this provision, the asset would be depreciated over many years. As of January 1, 2014, the limit on this expensing had been reduced to $25,000. TIPA once again increases the limit to $500,000 on purchases up to $2,000,000. To take advantage of this increased expensing amount, it is very important that the asset be bought and placed in service on or before December 31, 2014. Items placed in service after December 31 will not qualify.

Bonus depreciation is similar to Section 179 in that it allows for accelerated depreciation of assets. It differs, however, as bonus depreciation only applies to new assets and only 50% can be deducted in the first year. The remainder is depreciated over the life of the asset. There is not a limit on the amount of bonus depreciation as there is for expensing in Section 179. Again, like Section 179, the asset must be bought and placed in service before January 1.

Below are other extensions that affect businesses:

  • Research tax credit
  • New markets tax credit
  • Wage credit for military reservists
  • Work opportunity credit
  • Depreciation for race horses
  • 15-year recovery for qualified leasehold improvements
  • Seven-year recovery for certain entertainment complexes
  • Adjustment for S corporation stock making charitable contributions
  • Reduction of recognition period for built-in gains tax
  • 100% exclusion for sale of certain small business stock
  • 9% low income housing tax credit
  • Deduction for contributions of food inventory
  • Tax incentives for empowerment zones
  • Deduction for certain income in Puerto Rico
  • Rules relating to payments in foreign corporations
  • Rules for dividends of RICs
  • Subpart F income exemption

For Individuals, the following provisions were extended:

  • State & local sales tax deduction
  • Above-the-line deduction for qualified tuition and related expenses
  • Credit for energy-efficient existing homes
  • Mortgage insurance premium deduction
  • Deduction for Teachers’ classroom expenses
  • Exclusion for debt forgiveness on primary residence
  • Tax-free distributions from IRA to charity
  • Contributions of capital gain Real Property for conservation
  • Exclusion of employer-provided transportation benefits

If you have questions about these or any other issues, please contact us via email or call us at 800-635-4040.