The election’s over, we’ll have a new president come January, and there’s uncertainty at every turn. You know what won’t change? The need to do tax planning before the end of the year! Certain deductions that were set to end in 2015 or prior were extended by The Protecting Americans from Tax Hikes Act of 2015 (or PATH Act…who comes up with these acronyms?!). With the passage of the PATH Act, there are deductions that will still be in play for 2016, so let’s look at a few of them.
Teachers’ classroom expenses – elementary and secondary school teachers can take an “above the line” deduction of up to $250 for out-of-pocket classroom expenses. The above the line aspect is important, because it can directly reduce adjusted gross/taxable income, even if a taxpayer does not itemize deductions. The PATH Act expanded the deduction to allow “professional development” expenses, so the cost of any courses that the teacher takes (that relate to the curriculum that the teacher teaches) can be deducted.
Qualified tuition and fees – another above the line deduction is allowed for qualified tuition and fees paid for post-secondary education. There is a maximum amount allowed as a deduction, and this is subject to an adjusted gross income phase-out. The tax savings from this deduction should also be compared to the tax savings for taking an education credit, to see which yields the better benefit.
Mortgage insurance premiums – while this is an itemized deduction (and not an above the line deduction like the two above items) the tax savings for the ability to deduct mortgage insurance premiums (a/k/a PMI) as mortgage interest can help offset the cost of paying the premiums. As an itemized deduction, it’s subject to its own adjusted gross income phase-out.
Cancellation of mortgage debt – for taxpayers who are underwater on their mortgages and are able to have some of that debt forgiven, the Act extended the ability to not have to reflect the cancelled debt as income on a tax return. This provision is primarily geared toward mortgage debt on a taxpayer’s primary/principal residence, and there are limits on the amount that can be excluded.
Code Section 179 expensing – for businesses, the Section 179 expensing limit will remain at $500,000, which means that businesses will be able to deduct up to that amount for major capital purchases in year one, rather than have to depreciate those purchases over 5, 7 years or longer.
These are just a few things to consider before the end of the year. As always, if you’re unsure of how to plan for your own taxes before 2016 ends, you should contact your favorite tax professional (like JayTheCPA!)
Jay E. Reiner, CPA 