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Year-end tax guide: Tax law changes

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2015 Year-end tax guideLawmakers finally stopped spinning their wheels and enacted several pieces of tax legislation this year, but you may wish they hadn’t. The most significant provisions are all tax increases. Congress attached several revenue raisers to a pair of trade bills, and an even larger package of revenue raisers was used to finance a short-term extension of highway funding. The only major tax cut so far has been a reduction in excise tax rates for certain alternative fuels. As this guide went to print, Congress was still procrastinating over the “extender” (click for definition) provisions.

Extenders
Many of these extenders will likely be reinstated retroactively before the end of the year. However, without legislation, some of the most popular tax benefits for individuals would expire, including the following:
  • Election to deduct state and local sales taxes
  • Above-the-line tuition deduction
  • $250 above-the-line teacher expenses deduction
  • Tax-free charitable distributions from individual retirement accounts (IRAs)
  • Withholding exception for interest-related dividends of regulated investment companies (RICs)
  • Estate tax look-through for RIC stock held by nonresidents

Businesses would also lose some of their most important tax benefits, including the following:

  • Research credit
  • Work opportunity tax credit
  • Five-year holding period for built-in gains after a conversion to an S corporation
  • 15-year cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements
  • New markets tax credit
  • Subpart F exception for active financing income
  • Look-through treatment for payments between related controlled foreign corporations under foreign personal holding company income rules
  • Alternative fuel credit (including propane used in forklifts)

Many of these provisions have expired multiple times in the past and have commonly been reinstated retroactively. See the accompanying timeline of expirations and extensions of the research credit. Check with your local Grant Thornton professional to find out the latest information on whether any of these provisions have been extended.

Timeline on research and credit legislation (click to view chart)

Information return penalties
It’s more important than ever to properly track what you’re paying employees and vendors this year because penalties for failing to file 2015 information returns are more than doubling. Congress increased the late filing and failure-to-file penalties on most information returns, including:

  • Form W-2, Wage and Tax Statement
  • Form W-2G, Certain Gambling Winnings
  • Series Forms 1099, Miscellaneous Income
  • Form 1098, Mortgage Interest Statement
  • Form 1097, Bond Tax Credit
  • Form 5498, IRA Contribution Information

See Chapter 6 on your filing responsibilities for more details on information reporting. Statements to employees and vendors for 2015 wages and payments are typically due by Feb. 1 in 2016.

Expanded mortgage reporting
Congress enacted new legislation in 2015 that will require financial institutions to report to the IRS more information about the mortgages they hold, including loan origination date, outstanding principal and the property address. Banks will need to update their software to include this information in their reporting in 2017, and taxpayers should be aware that the IRS will have more information on their mortgage interest deduction.

New estate tax reporting
Most estates that file an estate tax return after July 31 will be required to furnish the value of all assets to the IRS and beneficiaries for the first time. The IRS has long worried that taxpayers are deflating the value of assets when calculating their estates, only to have the beneficiaries inflate the value after inheriting the property to get a higher basis. Taxpayers will now have to use the value assigned by the estate as the basis for their assets or face a penalty. As this guide went to print, the IRS hadn't issued procedures for estates to report asset value, so it extended the deadline for all reporting until Feb. 29, 2016.

More time to assess tax for basis understatements
The IRS now may have more time to send you a tax bill after an audit if you overstated the basis of an asset. Congress enacted a new law that reverses a Supreme Court decision in U.S. v. Home Concrete (132 S. Ct. 1836) by authorizing the IRS to use a six-year statute of limitations when an overstatement of basis causes a substantial understatement of gross income. The Supreme Court had ruled under prior law that an understatement of basis couldn't be considered a substantial understatement of income, and the statute of limitations was only three years.

New filing deadlines
This won’t affect your 2015 returns, but plan for big changes in the filing deadlines. Congress passed a law this year postponing the filing deadlines for C corporations and moved up the filing deadline for partnerships beginning with 2016 returns filed in 2017. The legislation also includes a host of other filing deadline changes, and the effective dates for some fiscal-year taxpayers are complicated. See Chapter 6 for a tax law change alert with more information on your filing responsibilities.

Propane fuel excise tax cut
The only good news included with the major tax changes is a cut in the fuel excise tax rates for liquefied natural gas (LNG) and liquefied petroleum gas (propane). The LNG rate is dropping from 24.3 cents a gallon to 14.2 cents beginning in 2016, while the rate on propane is dropping from 18.3 cents a gallon to 13.2 cents. You don’t get any benefit if you employ these fuels for a nontaxable use, such as propane used in forklifts, but you should get a break if you’re currently paying fuel tax.


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Mel Schwarz
T +1 202 521 1564
E mel.schwarz@us.gt.com

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