As another year begins, so does another tax season. Though it seemed uncertain whether the 2015 tax season would begin on time, the Internal Revenue Service announced that tax returns would be accepted and processed as scheduled.
When Congress voted to approve more than 50 “extender” provisions last month, tax professionals across the nation were relieved to be able to move forward with their planning and preparation as anticipated. The IRS reported that it will accept tax returns electronically on Jan. 20. The agency said it will begin processing paper tax returns at the same time.
IRS Commissioner John Koskinen said in an article published on agency’s website Monday, Dec. 29, that the IRS would use the days leading up to Jan. 20 to continue its task of upgrading and testing its systems in preparation of the tax season’s launch date.
Make The Most Of Your Tax Return
Individuals and businesses alike will benefit from several extended tax provisions. Here are a few we think some of you will find particularly beneficial:
- Short-Sale Relief – Those who sold their home for less than what they owed on their mortgage will once again be able to exclude the amount that was “forgiven” on their mortgage. Prior to 2007, when the Mortgage Debt Forgiveness Act took effect, taxpayers were required to report that amount as taxable income on their tax returns.
- Taming Tuition Cost – A couple with an adjusted gross income (AGI) of $130,000 or less may be eligible to claim an above-the-line deduction for up to $4,000 if they made payments toward tuition or other related expenses in 2014. The deduction is reduced to $2,000 for couples with an AGI between $130,000 and $160,000. Single individuals looking to claim this deduction should have an AGI of $65,000 to receive the $4,000 deduction and $80,000 to claim the $2,000 deduction.
- Charitable Reprieve – Older Americans were once again encouraged to make charitable contributions from their Individual Retirement Accounts (IRAs), which serves to lower their adjusted gross income up to $100,000 per year, while potentially providing them with tax relief. Prior to 2006, when this provision was enacted, an IRA owner older than 70-½ years would have had to pay tax on the funds before claiming the deduction.
Businesses will also benefit from several tax extenders. To find out if you qualify for one or more of these deductions or tax credits, email your financial advisor.
- Research & Development Incentive – The IRS says that some businesses may be eligible to receive a research and development tax credit. A business may be eligible to receive the tax credit if it has worked to develop new or improved products, processes or formulas, develop or apply for patents, and improve manufacturing facilities, or takes part in a number of other initiatives.
- Accurate Aging – The 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements helps by ensuring that depreciation of certain property more accurately reflects the useful life of the improvement.
- Bonus Depreciation – The first-year bonus depreciation allows a greater write-off in the year a capital purchase is made, advancing the taxpayers depreciation deduction.
- Deduct or Capitalize – Businesses still have the option of deducting up to $500,000 of qualified property under Section 179 depreciation rules (including $250,000 of qualified real property) rather than capitalizing it. Real property that is claimed as a deduction must meet the definition of leasehold improvement, restaurant, or retail improvement property for the purposes of 15-year depreciation.
- S Corporation Relief – The reduced S corporation recognition period for built-in gains tax was also extended. This relief provides S corps with the option of holding its assets over a 5 year period to avoid being taxed on any gains that may have existed during the S Corp conversion, rather than 10 years.
Many of these provisions are cumbersome, but if you take the time to understand their real benefits, the result could mean significant savings for you and your business. If you haven’t done so already, contact your financial advisor to set up an appointment to review your tax documents and prepare your 2014 tax return. If you need help learning what credits and deductions you may be eligible for, feel free to email Rea & Associates for more information.