Congress has finally added some sensibility to their law-passing process and made permanent several key tax benefits for individuals and small businesses which are available for 2015. Here is a list of the relevant tax benefits:
1) The Section 179 deduction has been permanently extended. Taxpayers may qualify for up to a $500,000 deduction of qualifying new or used equipment. The spending cap has been increased to $2,000,000. There is a dollar-for-dollar reduction in the deduction as total purchases in a tax year pass the spending cap threshold. For the vast majority of businesses this means that all of their equipment purchases can be written off. The $500K max deduction is now indexed for inflation. The 179 deduction is limited to taxable income of your business. You cannot make your business income negative using the deduction.
2) Bonus depreciation has been extended for the next five years starting in 2015. The rate is 50% for 2015 – 2017, and at 40% for 2018 – 2019. This deduction is allowed only on new equipment and there is not investment cap. There are no business income restrictions.
3) The child tax credit of $1,000 has been permanently extended. Income limits apply.
4) The American Opportunity Tax Credit has been permanently extended. This credit is worth $2,500/year for college related expenses in their first four years of post-secondary studies. (Note: both #3 & 4 are greatly beneficial to working families).
5) The deduction available to K – 12 teachers for the first $250 of expenses paid for classroom materials has been permanently extended. Moreover, the deduction has been indexed for inflation.
6) The ability to make a charitable contribution directly from your Individual Retirement Account (IRA) has been permanently extended. The income does not need to be reported on the taxpayer’s tax return. The deduction does not show up on the tax return either. This is only available for taxpayers that are 70.5 years old or older.
7) The option to take an itemized deduction for state and local taxes instead of state income taxes has been permanently extended. This is great for Kansans whose only income is exempt under Kansas law like self-employed business people.
The tax provisions are overly positive for small businesses and individuals. The passage of this law will make tax planning much more effective going forward. If you have any questions, please contact us at 620-663-7143 or check us out at busenbarkwrightcpa.com.
Dan Busenbark, CPA