On December 16, Congress approved the Tax Increase Prevention Act of 2014, a tax bill that extends over 50 tax breaks. The breaks, otherwise known as “extenders” include individual and business provisions that expired on December 31, 2013, and renewed for one year, retroactive to January 1, 2014. The bill is now on its way to the President, who is expected to sign it.

Taxpayers should review their personal and business tax situation and consider taking steps in the next few weeks to take advantage of the 2014 extenders, as the extenders will not be available in 2015 unless Congress once again approves them.  Following is a brief summary of extenders.  For a complete list, you can download the PDF here. Please contact your Meaden & Moore Client Service Representative or Angelina Milo (amilo@meadenmoore.com) for more details.

Individual Tax Extenders

• Tax deduction of state and local general sales taxes in lieu of state and local income taxes - Taxpayers who itemize their deductions on a Schedule A may elect to deduct state and local general sales taxes paid, rather than state and local income taxes. This provision is most beneficial to taxpayers who reside in states with no or low income taxes (i.e. Florida).
• Tax exemption of distributions from individual retirement accounts for charitable purposes - Individual Retirement Arrangement (IRA) owners age 70-1/2 or older may exclude up to $100,000 from gross income,  if the IRA funds were paid directly to qualified charities.
• Tax deduction of contributions of real property interests for conservation purposes – Taxpayers may deduct a charitable contribution for the value of a qualified real property interest to a qualified organization exclusively for conservation purposes.
• Tax deduction of qualified tuition and related expenses - Taxpayers may deduct up to $4,000 in education expenses so long as you meet certain income criteria.
• Tax deduction of expenses of elementary and secondary school teachers - Primary and secondary educators are eligible to deduct up to $250 of unreimbursed expenses for books, supplies, computer equipment, other equipment, and supplementary materials used in the classroom. The deduction is claimed above- the-line.
• Tax deduction of mortgage insurance premiums - Taxpayers may deduct premiums paid for qualified mortgage insurance obtained in connection with acquisition indebtedness on a qualified residence.

Business Tax Extenders 

• Tax Credit for increasing research activities - Businesses that incur expenditures for developing, designing, or improving a product, process, formula, technique, invention or software, you may be eligible for a dollar-for-dollar reduction in tax. Generally the credit is equal to 20% of the amount by which a business’s qualified research expenses for a taxable year exceed its base amount for that year.     
• Work Opportunity Tax Credit (WOTC) - Employers may claim a tax credit for hiring certain targeted workers, including veterans.  The credit could be as high as $6,000 per qualified employee (higher for some veterans).
• New Market Tax Credit – The credit provides taxpayers with 7 years of Federal tax credits for making investments in businesses located in Low Income Communities.
• Bonus Depreciation - accelerated depreciation of certain business property – Businesses that invest in new equipment would qualify for the 50% bonus first-year depreciation allowance. There was no limit on the total amount of bonus depreciation that may be claimed.  In addition to the bonus depreciation, regular depreciation using the MACRS rules can be taken on the remaining 50% of the new equipment cost.
• Increased expensing allowance for business assets, computer software, and qualified real property - Business owners may immediately deduct up to $500,000 of qualifying assets under Section 179, that otherwise require capitalization and become subject to depreciation. Under this provision, once total purchases exceeds $2,000,000, the expense amount $500,000 begins to phase-out. The advantage of this provision is that it applies to used as well as new assets.
• Accelerated depreciation of qualified leasehold improvement, restaurant, and retail improvement property – Businesses that invest in qualified leasehold improvement, restaurant, and retail improvement property may immediately deduct up to $250,000 under the provisions of Section 179.
• Enhanced deduction for charitable contributions of food inventory – Businesses which make donations of food inventories may claim the enhanced deduction for such donations.
• Reduction of the recognition period for the built-in gains of S corporations – Business that converted from a C to an S Corporation in a prior year, may qualify for the five year recognition period for built-in gain rather than the ten year recognition period.
• 100% exclusion from gross income of gain from the sale of small business stock - Taxpayers may qualify for 100-percent exclusion for gain on the sale or exchange of qualified small business stock. Preferential AMT treatment also applies. 

Energy Extenders

• Tax credit for residential energy efficiency improvements – Taxpayers may receive a tax credit up to $500 for the installation of qualified insulation, windows, doors and roofs as well as certain water heaters and qualified heating and air conditioning systems.
• Tax credit for energy efficient new homes - An eligible contractor may claim a tax credit of $1,000 or $2,000 for building or manufacturing a qualified new energy-efficient home. 
• Tax deduction for energy efficient commercial building – Taxpayers may claim a full or partial energy-efficient commercial building property deduction for all qualifying property installed as part of a plan to reduce the total annual energy and power costs of the lighting, heating, cooling, ventilation, and hot water systems.

This blog was co-authored by Angelina Milo.

Angelina Milo is a Vice President in Meaden & Moore’s Tax Service Group. With more than 20 years of experience dealing with entrepreneurial businesses, including eight years with a “Big Four” international accounting firm, Angelina has broad technical expertise in many industries, including manufacturing, real estate and professional services.