Tax Extenders – The Gift that Keeps on Giving

In the waning days of 2015, Santa stopped by the U.S. Capitol, loaded his sleigh with goodies and delivered them to taxpayers from coast-to-coast.

Wrapped up in packages labeled “extenders,” the Jolly Old Elf delivered a big surprise. Instead of just one-year tax extenders, all were at least two years, and many of the principal provisions were extended for five full years – or even made permanent.

What? Taxpayers will have the ability to actually do some multi-year planning???

Baby New Year 2016 could hardly believe his ears!

But, it’s true. In a complicated negotiation process that involved plenty of give and take, congressional Republicans and Democrats arrived at the best tax deal they’ve made in years. At once, it provides a higher level of certainty for taxpayers, removes tax details from an election year and sets up the groundwork for comprehensive tax reform as early as next year – in line with our prior blogs on this topic.

So, what are the major headlines? And, what’s next?

Some very large and important items were made permanent. These include the ability for individuals age 70 ½ and over to make tax-free charitable distributions from their IRAs, allowing students and parents various education credits and deductions, and permitting a state and local sales tax deduction in lieu of a state income tax deduction. Also, the enhanced earned income tax credit and child tax credit were made permanent parts of the tax law.

On the business side, the provision allowing the expensing of up to $500,000 of eligible property per year, subject to certain phase-outs and limitations, was made permanent, along with the tax credit for qualified research and development expenditures that was also significantly liberalized so as to be beneficial to smaller businesses. Bonus depreciation was extended for five years through 2019, albeit at lower percentages in 2018 and 2019, and the work opportunity tax credit was extended for five years.

Many other individual and business provisions were extended for two or five years or made permanent, and two controversial taxes – the medical device excise tax and the so-called “Cadillac” tax on certain high-cost employer-sponsored health insurance plans were each suspended for a two-year period. Both were enacted as part of the Affordable Care Act, but the president agreed to the deal.

The biggest takeaway from this exercise was the ability of new House Speaker Paul Ryan to deliver substantive legislation that included some genuine compromise. Both parties got something, and both parties gave something.

Seen in conjunction with the recently-enacted transportation and education bills, the whole idea of real tax reform, entitlement reform, and regaining control of the national debt seem less and less far-fetched as we move toward 2017.

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