After much deliberation, Congress passed the Protecting Americans from Tax Hikes (PATH) Act on December 18, 2015, which includes many permanent extensions taxpayers are very happy about. Sandy Furuya, Senior Accounting Manager at Wamhoff Financial Planning & Accounting Services, reviews the highlights.
Child tax credit
- The child tax credit of $1000 was made permanent. This was previously set to expire in 2017.
- This credit is available for each “qualifying child” in the household.
American opportunity tax credit
- The credit of up to $2500 for four years of post-secondary education was made permanent.
- Phase outs begin at $80,000 for Single taxpayers and $160,000 for Married taxpayers. This is very important for college families.
Elementary and secondary school teacher deductions
- The maximum $250 deduction for certain expenses of elementary and secondary school teachers was made permanent.
- Starting in 2016, the expenses will also include professional development expenses.
State and local sales tax deduction is back
- Taxpayers may continue to claim an itemized deduction for either the payments to state and local governments, or payments for state sales tax.
- The sales tax deduction is beneficial to taxpayers who do not pay state and local taxes such as retired individuals who are on a fixed level of income.
- It is also beneficial for those taxpayers residing in states who do not have a state income tax.
Tax-free individual retirement plan distributions for charitable purposes
- The PATH act also extended tax-free distributions from individual retirement plans for charitable purposes.
- If a taxpayer is at least 70-1/2 years of age, they can exclude from gross income qualified charitable distributions from IRAs.
- This exclusion may not exceed $100,000 per taxpayer in any tax year.