The PATH to a better tax season

On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 (PATH) was officially signed into law.  This law extended several deductions and credits that expired at the end of 2014 for individuals and businesses.  The law extended some of the tax breaks temporarily while some of the tax breaks were made permanent.

A few of the temporary deductions include the deduction for mortgage insurance premiums and the tuition and fees deduction which were both extended through 2016.  Taxpayers might be able to deduct mortgage insurance premiums paid on mortgages taken out after 2006 on their Schedule A.  The tuition and fees deduction allows a deduction for education expenses that don’t qualify for the American Opportunity Tax Credit or the Lifetime Learning Credit.  The ability to exclude the discharge of primary residence debt from income was also extended through 2016.

The real benefit of this law comes from the permanent extension of key deductions and credits that are widely used by taxpayers.  The following items were extended permanently: The schoolteacher expense deduction, the American Opportunity Tax Credit, the state and local sales tax deduction and the Qualified Charitable Distributions.  The schoolteacher expense deduction allows a deduction of up to $250 per year for out of pocket expenses.  The American Opportunity Tax Credit allows up to $2,500 per year for tuition and related education expenses for the first 4 years of post-secondary education.  The state and local sales tax deduction on Schedule A allows the taxpayer to deduct the higher of state income taxes paid or sales tax paid.  The Qualified Charitable Donation allows taxpayers over the age of 70 ½ to donate to a charity directly from their IRA.  This can be done in place of a Required Minimum Distribution and the distribution to the charity will not count as income.

While this law didn’t extend all deductions and credits permanently, it gives taxpayers and tax professionals the ability to plan more effectively.  For a complete list of the individual tax breaks and for the business tax breaks that were extended, consult your tax expert.