At the end of 2015, Congress passed a bipartisan act called the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act). The bill extends some tax breaks for individuals and businesses which were due to expire at the end of 2015. Some of the previously set to expire provisions were made permanent by the bill, while others were extended. The select items summarized below are potentially important personal and business planning considerations moving into 2016 and beyond.
Individuals
- 529 Education Accounts: A 529 education account is a tax-advantaged investment vehicle used to save for future higher education costs. Qualified costs allow for the payment of higher education expenses limited to tuition, fees, books, supplies and room board while enrolled at college or university. PATH has added computers and software to the definition of qualified expenses, as long as those items are used by the student while enrolled at the school.
- Rollover Contributions to SIMPLE IRAs: In the past SIMPLE IRA contributions were restricted to items listed under a qualified salary reduction arrangement. Meaning only money that was contributed from an employee’s elective deferrals and an employer’s contributions was allowable. PATH allows for a loosening of that restriction. Now a permanent change, a SIMPLE IRA allows for the rollover from a qualified plan under §402(c), a qualified annuity under §403(a)(4), a 403(b) tax-sheltered annuity under 403(b)(8), or an eligible §457(b) under §457(e)(16). One important caveat, a rollover from those types of accounts into a SIMPLE IRA can be made only after two years have passed since the individual first participated in the qualified salary reduction arrangement.
Businesses
- Gain on sale of qualified small business stock now excluded: In 2010 the Creating Small Business Jobs Act of 2010 (CSBJ) allowed certain taxpayers to exclude from their gross income 100% of the gain from the sale of qualified small business stock, they were also not subject to the AMT (Alternative Minimum Tax). The exclusion only applied if the stock was held for more than 5 years and the small business was taxed as a C corporation. PATH has now made that exclusion permanent and has removed the previous requirement that the business stock be acquired after the enactment of CSBJ.
- Cadillac Tax: Expensive employer-sponsored health plans have been granted a two-year delay in the excise tax enacted by Obamacare (the Cadillac Tax)
- Health Insurance Provider Fee: The bill also extends the deadline which, as a result of Obamacare, causes a fee on health insurance providers. This has been granted a one-year moratorium.
For a more in-depth breakdown of the laws impact, please see the following article in The National Law Review.
NOTE: This publication is not intended as legal or tax advice. It must not be used as a basis for legal or tax advice, and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a tax payer. Taxpayers should seek advice regarding their particular circumstances from an independent tax advisor