When operating a business in one of the highest-tax jurisdictions in the world (Tax Foundation), presumably it is important to know what tax rates and regulations are. When did the rates that affect decisions made in 2015 become known? Today! Well, since President Obama hasn’t signed the bill yet, maybe next week some time. Forbes explains what’s there with “Tax Deal Makes Permanent R&D Credit, Generous Child And College Breaks”:
R&D Credit: businesses, rejoice! The biggest ticket item of all the 52 extenders has finally been made permanent, as well as bigger and better. Beginning in 2016, businesses with less than $50 million in gross receipts will be free to use the credit to offset alternative minimum tax. [See this article on alternative minimum tax for corporations and this example.]
Enhanced Section 179 deductions: In recent years, taxpayers have been entitled to immediately deduct up to $500,000 of the cost of qualifying asset acquisitions (with a phase-out beginning at $2 million). These threshold were due to plummet to $25,000 and $200,000 respectively, beginning on January 1, 2015.
100% exclusion on Section 1202 stock: as I wrote about here, changes made in 2009 and 2010 to Section 1202 — which allows a taxpayer who sells qualifying small business stock held for longer than 5 years to exclude part of the gain — increased the exclusion from 50% to 100% (subject to limitations). This 100% exclusion was made permanent for stock, bringing great relief to investors who acquired QSBS stock in 2015. [i.e., if you have a PhD in accounting you can avoid paying capital gains tax on appreciated small business stock]
Enhanced American opportunity tax credit: From 2009 through 2017, taxpayers have been entitled to a $2,500 credit for four years of post-secondary education, with phase-outs beginning at $80,000 (if single) and $160,000 (if married filing jointly). In 2017, however, the credit was slated to return to an $1,800 annual maximum with lower phase-out thresholds. This deal makes the enhanced credit a permanent fixture in the law. [more welfare for U.S. universities]
Obamacare came under fire as part of the negotiations, as the agreement would pause the 2.3% excise tax on medical devices in 2016 and 2017, while the start of the so-called Cadillac tax on high-cost employer-sponsored health insurance would be delayed from 2018 to 2020. [i.e., the only parts of Obamacare that we like, apparently, are the ones where the government is giving us money]
Because the earned income credit is a lightning rod for fraud, taxpayers will not be permitted to file amended returns claiming the credit for a year when they did not have a valid social security number. The same holds true for the child tax credit; a taxpayer may not file an amended return claiming the credit for any year in which they did not have a valid ITIN (taxpayer identification number). In addition, taxpayers convicted of fraud in claiming the earned income credit will be barred from claiming the credit for ten years, while those found to have recklessly disregarded the rules will be prohibited from claiming the credit for two years. A 20% penalty will also be applied to the refundable portion of improperly claimed credits, reversing an earlier court decision. [i.e., the dream of simplifying the American welfare system with a negative income tax doesn’t work because we are too devoted to fraud]
I look forward to paying my accountant to figure out what all of this means…
Related:
- previous Forbes article that describes the federal tax code as “about as permanent as a Kardashian marriage.”