Federal Tax Breaks Restored

Federal Tax Breaks Restored

Individual and business taxpayers can benefit from a variety of federal tax breaks that were extended or made permanent by the Protecting America from Tax Hikes (PATH) Act, and the Consolidated Appropriations Act of 2016. Here are selected highlights.

State and local sales tax deduction

The law gives individuals who itemize their deductions the option of deducting state and local sales taxes instead of state and local income taxes. Taxpayers who elect to do so may deduct the actual amount of sales taxes paid during the year or a preset amount from an IRS table. This provision has been made permanent.

Nontaxable IRA transfers to charities

Taxpayers age 70 ½ or older who directly transfer up to $100,000 annually from their individual retirement accounts (IRAs) to qualifying charities can exclude these contributions from gross income. If all qualifications are met, these contributions will still count toward the taxpayer’s required minimum distribution for the year. This provision has been made permanent.

Increase in expensing limits

The law permanently extends the increased Section 179 expensing limit, allowing eligible businesses to expense, rather than depreciate, up to $500,000 per year of the cost of equipment and other eligible property placed in service during the tax year. The election is subject to a dollar-for-dollar phase out as the cost of expensing-eligible property rises from $2 million to $2.5 million. The IRS will adjust the 179 limits for inflation.

First-year bonus depreciation

Eligible businesses may claim bonus depreciation for qualifying property acquired and placed in service during 2015 through 2019. The available bonus depreciation percentage depends on the year the property is placed in service: 50% for 2015 through 2017, 40% for 2018, and 30% for 2019. For certain longer-lived and transportation properties, these percentages apply one year later than indicated, and bonus depreciation will be available through 2020.

Increase in “luxury auto” limits

The new law increases the dollar limits on depreciation deductions (and Section 179 expensing) by $8,000 for vehicles placed in service after 2015 and before 2018. The limits are increased by $6,400 for vehicles placed in service in 2018 and by $4,800 in 2019.

Standard Mileage Rates for 2016

Standard Mileage Rates for 2016

If you use a car for business purposes and figure your tax deduction using the IRS’s standard mileage rate—you won’t be able to deduct as much for the miles you drive in 2016 as you could in 2015.


As of January 1, 2016, the IRS set the standard mileage rate for business use of an owned or leased auto at 54¢ per mile (3.5¢ lower than the 2015 rate). Other IRS optional standard mileage rates for the use of a car (or van, pickup, or panel truck) are:

  • 19¢ per mile for medical purposes
  • 19¢ per mile for moving purposes

Additionally, a rate of 14¢ per mile, which is set by statute, applies to the use of a vehicle for charitable purposes.


The standard mileage rates are used to calculate the deductible costs of operating an auto for business, charitable, medical, or moving purposes. Tax Payers may claim deductions based on the actual costs of using a vehicle. Important to keep in mind though is the use of the standard mileage rate is simpler because it does not require the taxpayer to keep track of specific costs for maintenance, repairs, tires, oil, insurance, etc.

Many employers have an “accountable plan” in place to reimburse employees for their business expenses on a tax-free basis. The standard mileage rate may be used to reimburse employees who use their personal autos for business.

All in the Family Tax 2016

All in the Family Tax 2016

As summer approaches, you may be thinking about hiring one of your children to work in the family business. It can be a good move for both you and your child. You could benefit from a reduction in taxes, while your child has a chance to earn a paycheck and develop valuable workplace skills.


Hiring your child to work in the family business is a smart strategy from a tax perspective. Since your child is a minor he or she can qualify as a deduction from your business income, which would otherwise be taxed at your own rates.

If you are a sole proprietor, or operate a partnership with only your spouse, wages paid to your child would be exempt from Social Security and Medicare (FICA) taxes until your child turns 18 and from federal unemployment taxes until age 21.

Your child can offset what wages he or she earns with the standard deduction, which is $6,300 for 2016. Wages your child earns beyond the standard deduction will be taxed at his or her lower rates. Most likely, your child’s taxable income would fall in the 10% bracket, which applies to taxable income of $9,275 or less (in 2016).


Any work your child does must be ordinary and necessary for your trade or business. Your child’s wages must also be “reasonable” in relation to the services performed. For example, paying your child $2,500 a week to answer the company’s phones is unlikely to fly with the IRS.

Have your child sign a written employment agreement that specifies his or her duties, hours, and wages. You then have documentation if the IRS ever questions the nature of your child’s work. Your child should be paid by check, not cash, and the check should be deposited in a bank account in his or her name.

Congress Extends Many Tax Breaks


At the end of last year, Congress continued its tradition of passing an “extender package.” Typically, the year-end packages extend various tax benefits for one year only, but this most recent legislation, the Protecting Americans from Tax Hikes (PATH) Act of 2015, extended many benefits for longer periods, and in some cases—permanently.


The following are some of the more important provisions affecting individual taxpayers:

State and local sales taxes

The new law permanently extends a provision allowing taxpayers to take an itemized deduction for state and local sales taxes rather than state and local income taxes. This provision may be useful to individuals who live in states with no income tax, or who have purchased an expensive item such as a car.

American Opportunity Tax Credit

Also made permanent is a tax credit of up to $2,500 per year for the payment of qualified tuition and related expenses for the first four years of post-secondary education. The credit is subject to phase out based on income level.

Higher education expense deduction

This provision allows eligible individuals to deduct up to $4,000 or $2,000 (depending on income) of qualified tuition and related expenses. The deduction is “above the line,” so taxpayers do not need to itemize to take it. The deduction is extended for 2015 and 2016.scissors

Nontaxable IRA charitable transfers

Under this now permanent provision, individuals age 70 ½ or older may exclude up to $100,000 per year from gross income for direct transfers from their individual retirement accounts to qualifying charities. If all requirements are met, such contributions also count toward the taxpayer’s required minimum distributions.


Among other changes, the PATH Act of 2015 provides more generous write-offs for qualifying fixed asset purchases. One inclusion is the Higher Section 179 limit. Effective for the 2015 tax year, the new law makes permanent the $500,000 limit on the cost of machinery, equipment, and other eligible property that businesses may expense each year. The election is subject to a dollar-for-dollar phase out once the cost of expensing-eligible property exceeds $2,000,000.

Also included is the “Bonus” first-year depreciation. Thanks to the new law, businesses will continue to have the option of deducting 50% of the cost of qualifying property (e.g., most machinery and equipment) in the year the property is placed in service. The 50% “bonus” depreciation percentage is available for 2015, 2016, and 2017. The percentage drops to 40% in 2018 and to 30% in 2019.