Every year, The IRS gets together and starts looking at economic news and forecasts and works with several departments of the government to tweak our tax code. They look at the leading economic indicators, they decide what they need to change, and the collection of tax revenue often changes by year end. In 2015 there was a lot of activity in making temporary tax rules that had been put in place and carried forward numerous years into permanent tax rules.
For Example, originally as part of the Bush tax cuts was a temporary tax law that was that allowed taxpayers, once they obtained the age of 70 and a half the ability to have funds go from a personal IRA directly to a charity. The gift satisfying the required minimum distribution rules for IRAs, but was not included in your personal tax income. This was very popular and was made permanent in the 2015 tax code negotiations! A great planning tool for both financial advisors and for their clients. Now in 2016 and from now on those who are who are over 70 and a half and have some form of pre-tax account, can use this way to fulfill their charitable goals and get 100% pre-tax distribution instead of taking the distribution, paying income tax on the distribution and then only getting a deduction based on the percentage of tax they pay.
I know on the first read this probably sounds complicated, but it’s very simple. It’s better to take the income taken off your tax return than to take the deduction. It’s a win and it’s now permanent.
There are numerous other items which we’ll partiality list the permanent but others not listed are extended for two more years as well, but at the end of the day, to utilize these deductions properly does take some forethought and planning.
- Permanent extensions
- Qualified charitable distributions (QCDs) from IRAs
- Deduction for state/local sales tax
- Higher education credit (American Opportunity Tax Credit)
- Teachers’ classroom expense deduction
- Code Section 179 deduction
- Exclusion of gain on qualified small business stock
Because they’ve been temporary, in some cases on and off again tax rules, I don’t think most tax firms have really intertwined their advice to the general population of how to use these breaks because they haven’t always been permanent. Now’s the time to examine your personal income or business income, see if any of these tax breaks that are now permanent could be helpful to you before the end of 2016. The best way to do that is to call us, text, or e-mail us right now and we’ll set an appointment, discuss these new permanent tax code rules, and examine which ones may be beneficial to you. Then you’ll have time to react before the end of the year without being in a rush. Call us today.