It’s January and it’s cold here in Bangor, Maine. With all the snow and wind and freezing temperatures, it’s understandable that you may not want to venture out for a meeting with your accountant. However, there are many important tax developments that have occurred in the past three months that may affect you, your family, your business, your investments, and your livelihood and may warrant a meeting with an accountant so that you can take advantage of all that apply to you. Please call or e-mail us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.
New tax legislation. While in the past, Congress has been chastised by some for being gridlocked, there was a flurry of new laws containing tax provisions in the last quarter of the year:
- The Protecting Americans From Tax Hikes (PATH) Act (P.L. 114-113, 12/18/2015) retroactively extended 50 or so taxpayer-favorable tax “extenders”-temporary tax provisions that are routinely extended by Congress on a one- or two-year basis, that had been expired since the end of 2014. It made permanent more than a dozen of the extenders (including the enhanced child tax credit, American opportunity tax credit, and earned income tax credit; parity for exclusion from income for employer-provided mass transit and parking benefits; the deduction of State and local general sales taxes; the research credit; and 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements). It also contained a delay in the Affordable Care Act’s 2.3% excise tax on medical devices and provisions on Real Estate Investment Trusts (REITs), IRS administration, the Tax Court and numerous other rules.
- The Consolidated Appropriations Act (P.L. 114-113, 12/18/2015) included a delay of the Affordable Care Act’s 40% excise tax on high cost employer-sponsored health coverage (i.e., the so-called “Cadillac” tax) and a one-year suspension of the annual fee on health insurance providers, in addition to the extension and phaseout of credits for wind facilities, the election to treat qualified facilities as energy property, the solar energy credit, and qualified solar electric and water heating property credits. It also contained a provision that gives independent oil refiners a favorable way of accounting for transportation costs in calculating their domestic production activities deduction.
- The Fixing America’s Surface Transportation (FAST) Act (P.L. 114-94, 12/4/2015) requires the Secretary of State to deny a passport (or renewal of a passport) to a seriously delinquent taxpayer (i.e., generally, a taxpayer with any outstanding debt for Federal taxes in excess of $50,000). It also requires the IRS to enter into qualified tax collection contracts with private debt collectors for the collection of inactive tax receivables and repealed a recently enacted provision that provided for a longer automatic extension of the due date for filing Form 5500.
Tax season begins. Despite the last minute, year-end tax legislation described above, the IRS announced that tax season will begin as scheduled on Tuesday, January 19, 2016. The IRS will begin accepting individual electronic returns and paper returns on that date. The IRS noted that many tax software companies began accepting tax returns earlier in January and will submit them to the IRS on or after January 19. The IRS also noted that there is no advantage to people filing tax returns on paper before January 19, instead of waiting for e-file to begin.
Standard mileage rates down for 2016. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) decreased by 3.5¢ to 54¢ per mile for business travel after 2015. This rate can also be used by employers to provide tax-free reimbursements to employees who supply their own autos for business use, under an accountable plan, and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense decreased by 4¢ to 19¢ per mile.
Affordable Care Act information reporting deadlines are extended. Under the Affordable Care Act, insurers, self-insuring employers, and certain other providers of minimum essential coverage must file information returns with the IRS and furnish certain information to individuals. Information reporting is also required for applicable large employers (ALEs). In guidance, the IRS has extended the due dates for certain 2015 information reporting requirements under the Affordable Care Act. The IRS has also provided guidance to individuals who, as a result of these extensions, might not receive a Form 1095-B or Form 1095-C allowing them to establish that they had minimum essential coverage by the time they filed their 2015 tax returns.
De minimis expensing safe harbor under capitalization regulations is increased. As an alternative to the general capitalization rule, regulations permit businesses to elect to expense their outlays for “de minimis” business expenses. The election is allowed where the amount paid for the property doesn’t exceed $5,000 per invoice (or per item as substantiated by the invoice) if the taxpayer has an applicable financial statement (AFS), but a $500 limit applies where the taxpayer does not have an AFS . In new guidance, the IRS has increased, from $500 to $2,500, the de minimis safe harbor limit for taxpayers that don’t have an AFS. The increase applies for costs incurred during tax years beginning on or after January 1, 2016, but use of the new limit won’t be challenged by the IRS in tax years prior to 2016.
Deduction safe harbor for remodeling costs of retail and restaurant businesses. Taxpayers are generally allowed to deduct all the ordinary and necessary expenses paid or incurred in carrying on any trade or business, including repair and maintenance costs, but must generally capitalize amounts paid to acquire, produce, or improve property. Determining how these rules apply to the various components of a remodelling project can be a complex and difficult undertaking. In new guidance, the IRS has provided a safe harbor method that taxpayers engaged in the trade or business of operating a retail establishment or a restaurant may use to determine whether costs paid or incurred to refresh or remodel a qualified building are deductible or must be capitalized. Under the safe harbor, a qualified taxpayer treats 75% of its qualified costs paid as deductible and 25% as expenses that must be capitalized.