PATH Act “extenders” and More: Year End Tax Planning Series

PATH Act “extenders” and More: Year End Tax Planning Series Continued

To continue our discussion on year-end planning considerations, keep in mind that what Congress giveth it occasionally taketh away! Some tax provisions go away after the current year.

PATH Act “extenders” and more

Year to year, the tax law changes; and with it, opportunities and pitfalls that need particular attention at year end. In many cases, these changes are accounted for based on a tax-year period. Once the current tax year is over, there often is no going back for a “do-over” for a missed opportunity or to correct a costly mistake. Year-end 2016 is no exception to this rule.

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted immediately before the start of 2016, permanently extended many tax incentives that were previously temporary, removing for the first time in many years the year-end concern over whether these incentives will be extended either retroactively for the current year or prospectively into the coming year. Not all of these “extenders” provisions were extended beyond 2016, however; and some were modified in the process. Others were extended for up to five years, deferring to “tax reform” a more lasting solution. Here’s a list of the major changes made by the PATH Act, especially focused on how they impact year-end transactions:

• permanent American Opportunity Tax Credit
• permanent teachers’ $250 “classroom” expense deduction
• permanent state and local sales tax deduction election, in lieu of state income taxes
• permanent exclusion for direct charitable donation of IRA funds of up to $100,000
• permanent 100-percent gain exclusion on qualified small business stock
• permanent conservation contributions benefits
• five-year solar energy property
• nonbusiness energy property credit through 2016
• fuel cell motor vehicle credit through 2016
• mortgage insurance premium deduction through 2016
• tuition and fees deduction through 2016

Life events

In addition to monitoring tax provisions life events such as marriage, birth or adoption of a child, a new job or the loss of a job, and retirement, all impact year-end tax planning. A change in filing status will affect tax liability. The possibility of significant changes and/ or significant or unusual items of income or loss should be part of a year-end tax strategy. Additionally, taxpayers need to take a look into the future, into 2017, and predict, if possible, any events that could trigger significant income, losses or deductions.

Next week I will discuss retirement planning and a number of year-end considerations regarding write-offs and tax deductions that may affect your year-end purchase decisions.

If you missed last week’s blog, you can read about it here: Year End Tax Planning Series