Normally I would write about the good, the bad, and the ugly of the extender legislation. It’s different this year, because the legislation passed by Congress and signed into law doesn’t have much that’s ugly. Instead, there’s some great news, some good news, and a bit of bad news.
Let’s start with what I think are the two best things about the extender legislation. First, many provisions were made permanent:
- Section 179 deduction of $500,000;
- Taxpayers age 70 1/2 (or older) can make $100,000 annual charitable contributions from their IRAs that will not be included in their income;
- The sales tax deduction (as an alternative to deducting state and local income taxes);
- The educator expense deduction (and it’s also indexed for inflation); and
- We have a sense of permanency on many of the extenders. There are more items made permanent (some of which are detailed below), but the fact that these are made permanent makes it far easier to plan for taxes.
Second, a few states have barred Enrolled Agents (what I am) from calling themselves Enrolled Agents. While this provision has not impacted me directly, EAs in Ohio and North Carolina could not in the past call themselves EAs. This was due to lobbying from state CPA associations in those states. Section 410 of the PATH legislation (which is where the Extenders are) contains the following provision:
Section 410. Clarification of enrolled agent credentials. The provision permits enrolled agents approved by the IRS to use the designation “enrolled agent,” “EA,” or “E.A.” The provision is effective on the date of enactment.
So my colleagues in Ohio and North Carolina (and perhaps elsewhere) can now call themselves what they are.
There are a few more provisions that I would put in the “Good” section. The Child Tax Credit, the American Opportunity Tax Credit (an education/college credit), and the Enhanced Earned Income Credit were made permanent. The research credit and the five-year recognition period for the Built In Gains Tax (C Corporations converting to S Corporations) were also made permanent. (There are other items made permanent; I’m just noting the highlights.)
Some items were extended solely for five years. These include 50% bonus depreciation (which is being phased-out over five years), the new markets tax credit, the work opportunity tax credit, and a controlled foreign corporation provision.
Many other items were extended for just two years. Note that nothing was extended for simply one year, so we know today what 2016 taxes are going to be. This is likely the first time in ten years (or longer) that we’ve had a very good idea of what the Tax Code for a year would be on January 1st of that year. The two-year items include the ability to deduct mortgage insurance (as an itemized deduction), the “above-the-line” deduction for qualified tuition expenses, tax credits for renewable energy sources, and the exclusion for qualified mortgage debt forgiveness.
There are some bad items, and these include a couple of the points I’ve mentioned. I strongly dislike welfare being done through the Tax Code. It causes the Tax Code to be complex, and puts the IRS in a mission it shouldn’t be in. Second, I dislike refundable tax credits; they lead to fraud and are difficult for the IRS to manage.
Overall, the fact that this has passed means that Tax Season should be able to open around January 19th. And that’s perhaps the best news of all.