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Taxes with scissors

Congress passed, and the president signed into law, the Tax Increase Prevention Act of 2014, which has given a retroactive one year “stay” to many popular tax deductions for both individuals and businesses. The law is retroactive to January 1, 2014.

Section 179 and Bonus Depreciation

Bonus depreciation receives a one year extension under TIPA 2014.  Bonus depreciation allows taxpayers to claim an additional first-year depreciation deduction of 50% of the cost of qualifying property.  In addition, the Section 179 dollar limit for 2014 has been changed to $500,000 with a $2 million overall investment limit.

State and Local Sales Tax Deduction

After December 31, 2013 the election to claim an itemized deduction for sales tax instead of state income tax expired.  This provision is important to taxpayers living in states like Texas that do not have a state income tax.  Congress gave a one year extension for this provision as well, so Texans will be able to deduct the greater of sales tax or state income tax as an itemized deduction on our 2014 tax returns.

Teachers’ Classroom Expense Deduction

Primary and secondary educators are allowed to deduct, above the line, qualified expenses up to $250 paid out-of-pocket during the year for supplies, books and such used in their classrooms.  My teacher clients tell me they spend way more than $250/year on supplies for their classrooms.  This provision is extended under the Tax Increase Prevention Act for calendar year 2014.

Charitable Distributions from IRAs

TIPA 2014 extends the provision to make tax-free distributions from individual retirement accounts to a qualified charitable organization.  The treatment is limited to a maximum of $100,000 per taxpayer each year.  There was some push from legislators to make this provision permanent; however, it was only extended through 2014.

Takeaway

Small business owners still have a week to purchase qualifying depreciable property to utilize Section 179 and bonus depreciation.  If you haven’t received your required minimum distribution from your IRA, you may consider having it transferred to a qualified charitable organization.  In addition, for folks who live in states without state income tax, you may consider buying a car and utilizing the additional sales tax deduction before year end.