Highlights of the 2014 Tax Extender Package

On December 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014 (TIPA). Many of the individual and business tax credits that had expired at the end of 2013 were extended with TIPA, but only through December 31, 2014. This article will highlight some of the credits that were reinstated as a result of TIPA.

Tax-Free IRA Distribution to a Qualified Charity
The tax-free IRA distribution to a qualified charity was one that we were hopeful would be extended, and it was in fact part of the package. With this deduction, taxpayers over 70½ are able to make a tax-free rollover from an IRA directly to a charity, up to $100,000. This provision allows a taxpayer to satisfy their required minimum deduction without adding to their income.

Higher Education Deduction
The higher education tuition deduction was also extended as part of TIPA. With this, taxpayers can deduct qualified tuition and fees as an adjustment to income (“above the line”). Depending on your income, this deduction can range from $2,000 to $4,000. The maximum deduction of $4,000 is for individual taxpayers whose adjusted gross income does not exceed $65,000 or $130,000 on a joint return. The minimum deduction applies to taxpayers whose adjusted gross income does not exceed $80,000 or $160,000 on a joint return.

Deduction for Teachers’ Expenses
A part of TIPA that is beneficial to teachers is the teachers’ classroom expense deduction. This deduction allows educators teaching grades K-12 to deduct up to $250 of out-of-pocket, school-related expenses.

50% Bonus Depreciation
For businesses, one of the more important extensions was the 50% bonus depreciation. This deduction allows businesses to deduct an additional 50% of depreciation in the first year for qualifying new property, as long as it was placed in service in 2014. It is important to note that for certain property that has longer production periods, the placed-in-service deadline was extended through the end of 2015.

Section 179
Businesses also saw the maximum Section 179 deduction of $500,000 extended for 2014. This deduction lets taxpayers deduct the cost of qualified assets immediately instead of gradually depreciating the cost. If this was not extended for 2014, the maximum deduction would have been reduced to $25,000. Additionally, TIPA extended the investment limitation of $2 million to cover the 2014 tax year.

R&D Tax Credit
Unfortunately, the research credit was not made permanent last year, but it was extended for 2014. This credit offers a significant incentive for businesses to continue investing in innovative research and design.

While these extensions are good news for your 2014 taxes, we will have to once again see what comes in 2015, as TIPA only extended the expired credits through December 31, 2014.

This article highlights just a few of the items that were extended. Should you have any questions about the extensions and how they will affect your 2014 taxes, please feel free to contact me at (805) 963-7811 or eboscacci@bpw.com.