Monthly Archives: July 2015
On June 29, the President signed into law two major trade bills: the Trade Preference Extension Act of 2015 and the Trade Priorities and Accountability Act of 2015. These two trade laws made a handful of tax law changes, including the following:
$1,000 Child Tax Credit Limited for Certain Taxpayers with Foreign Earned Income
U.S. citizens and residents are taxed on their worldwide income. Under existing law, taxpayers who meet certain residency or physical presence requirements within a foreign country and who have foreign earned income (wages, self-employment income) can exclude up to $100,800 of this income from U.S. taxation. This provision is known as the foreign earned income exclusion.
Taxpayers can claim a $1,000 child tax credit for dependent children under age 17. The child tax credit is refundable. Under the new trade law, beginning in 2015, any taxpayer who takes advantage of the foreign earned income exclusion for a tax year cannot claim the refundable portion of the child tax credit.
Greater Exemptions from 10% Penalty on Qualified Plan Early Distributions
Qualified plan participants who separate from service after reaching age 55 can avoid the 10% penalty on early distributions. The age requirement is lower for certain government pension plans for state or local police, firefighters or emergency personnel. For these workers, the separation of service must occur after reaching age 50.
The trade law expands the category of eligible governmental workers who can qualify for the exemption from the 10% penalty after reaching age 50. The expanded workers include federal law enforcement officers, customs and border protection officers, federal fire fighters, and air traffic controllers. Additionally, the new trade law expands the types of plans from which distributions eligible for the exemption can be made.
Penalty Increases for Errors on Form 1099
The current tax law imposes a penalty on taxpayers who do not file correct informational returns (such as Form 1099) with the IRS. There is a separate penalty on taxpayers who do not provide the payee with a correct copy of the informational return.
Under the new trade law, these penalties are increased. For example, for an unintentional delinquency that is corrected within 30 days of the due date, the penalty is increased from $30 to $50 and the maximum penalty for any year for “small” taxpayers is increased from $75,000 to $175,000.
Health Coverage Tax Credit
The Health Coverage Tax Credit is a federally funded tax credit that allows individuals to pay only a portion of their qualified health insurance. This program was created in 2002 to help workers who were trade-affected. The federal government pays a significant portion of these workers’ qualified health insurance. This program expired at the end of 2013.
Under the new trade law, this program is retroactively reinstated for 2014 and is extended through 2019.
If you have questions on how this relief applies to you, give us a call at 248-538-5331.
Tax planning is challenging enough due to the complexity of the tax law. What can make it especially daunting is when Congress changes the law retroactively. The Tax Increase Prevention Act of 2014, signed by the President in December 2014, extended a number of then-expired extender provisions. The problem is that these provisions were extended through December 31, 2014. They were not extended into 2015.
These provisions are currently expired, but there is some hope that Congress will act sooner this year than they did last year to extend these beneficial provisions. The Senate finance committee may take up the extension package in the next few weeks and the House Ways and Means committee may take the matter up in September.
What Tax Extenders Benefit Individual Taxpayers?
The expired provisions affecting individual income taxes are:
- the deduction for state and local sales taxes
- the above-the-line deduction for qualified tuition
- exclusion of up to $2 million of discharged principal residence indebtedness from taxable income
- the $250 above-the-line deduction for teacher expenses
- deduction for mortgage insurance premiums
- parity for exclusion for employer-provided mass transit and parking benefits
What Tax Extenders Benefit Business Taxpayers?
The most relevant expired provisions affecting business income taxes are:
- increase in first year fixed asset expensing to $500,000 and expanded definition of Section 179 property
- 50% bonus deprecation
- the research and development credit
- employer wage credit for activated military reservists
- special 100% gain exclusion for qualified C corporation small business stock
- reduction in S corporation recognition period for built in gains
- 15 year straight line cost recovery for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvements
What Tax Extenders Benefit Business Taxpayers?
The most relevant expired provisions affecting charitable contributions are:
- tax-free distributions for charitable purposes from IRAs
- basis adjustment to stock of S corporations making charitable contributions of property
- enhanced charitable deduction for contributions of food inventory
If you have questions on how this applies to you, give us a call at 248-538-5331