Knowledge and Insights

As December waned, Congress passed and President Obama signed the Tax Prevention Act of 2014 (TIPA). This act was intended to extend more than 50 tax provisions that expired on December 31, 2013. These provisions benefit both individuals and businesses in the form of deductions, credits and other tax savers that have been present in the tax law for years, but were always temporary in nature because they carried an expiration date. The extender is only for one year and the frustrating part is that such a late passage, 12 days before the end of 2014, left some taxpayers unable to take advantage of proper planning.

In addition to the extenders legislation in TIPA, the Achieving a Better Life Experience (ABLE) Act of 2014 was also passed. ABLE provides for tax-advantaged saving to help meet the financial needs of disabled individuals.

Let’s highlight the items that you can take advantage of when you file your 2014 tax return.

• For our clients in Texas and Florida, the deduction for state and local sales tax is back.
• Educators will be able to deduct $250 above the line for in-classroom teaching supplies.
• Mortgage insurance premiums paid on qualified personal residences are deductible subject to income limitations.
• Lower-income taxpayers can deduct up to $4,000 in higher-education expenses above the line.
• The $ 500 energy credit for certain energy-efficient improvements made to your residence has been extended to include improvements made in 2014.
• First-year bonus depreciation is back for 2014, which allows you to write off 50% of the adjusted basis of qualified property in its first year of service.
• The limit of Section 179 write-offs for qualified property was increased from $ 25,000 back to the 2013 level of $ 500,000.
• Certain restaurant and retail leasehold improvements made in 2014 will be eligible for a shorter 15-year write-off.
• The 100% exclusion of gain on small business stock was extended into 2014 and the exception from alternative minimum tax was also extended.

The new ABLE legislation provides an opportunity for tax-advantage savings for individuals with disabilities following the model of the Qualified Tuition Plans (QTP). For tax years beginning after December 31, 2014, TIPA allows states to establish tax-exempt ABLE accounts to assist persons with disabilities in building an account to pay for qualified disability expenses. Similar to a QTP, a tax exemption would be allowed for a qualified ABLE program; although contributions into the ABLE account would not be tax deductible, amounts in an ABLE account would accumulate on a tax-exempt (or, in some cases, tax-deferred) basis.

Contributions would be limited by the annual gift tax exclusion (currently $ 14,000); the beneficiary of the account must meet the criteria of disabled under the Social Security Act; and the distributions must be made for qualified disability expenses.

If you would like additional information on how this legislation affects you, please contact us at [email protected] or 609-689-9700.