Every year there are some common tax breaks that many Americans take advantage of, yet they seem to expire or need to be renewed annually. Some actually end up expiring for some time until congress reenacts them, sometimes years later. Not anymore! Congress has made the following common tax breaks permanant as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015.
- Charitable IRA Distributions – This provision allows individuals to make distributions of up to $100,000 annually from their IRA’s that they can exclude from gross income. Therefore, if you are over 70 ½ and subject to Required Minimum Distributions (RMD), and your RMD is under the $100,000, you can “gift” the Required Minimum Distribution directly to charity and exclude it from your income during that year.
- Deduction for State and Local Sales Taxes – taxpayers may claim, as an itemized deduction, either payments of state income taxes or the payments of state sales taxes. For most people that live in states with high state income tax rates this usually amounts to claiming a deduction for state income taxes. However, if you are in a state with a low or no state income tax, you will now (permanently) have the option to claim an itemized deduction for state sales taxes.
- American Opportunity Tax Credit –This provision allows families to claim a tax credit of up to $2,500/year for tuition and related expenses, for the first four years of post-secondary education. There is an income cap on who can claim this credit ($160,000 of Adjusted Gross Income for married couples and $80,000 for individuals); however this provision has been made permanent. It was set to expire in its current form at the end of 2017.
Rather than having to scramble at year end when these provisions typically get extended, the permanent nature of these tax breaks will lead to a greater degree of certainty around various tax planning strategies. If you would like to see if any of these strategies are applicable to you please contact a member of our wealth management team.