Michael Gray, CPA’s Option Alert

An irregular alert for issues relating to employee stock options

December 22, 2014
© 2014 by Michael Gray, CPA
ISSN 1931-2768

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President Obama signed the Tax Increase Prevention Act of 2014, (HR 5771) last Friday, December 19.

The legislation extends many tax breaks that expired after 2013 for 2014 only.

Here is a list of some of the major provisions:

Business extenders

  • 50% bonus depreciation for new property.
  • $500,000 limit for Section 179 expense election for depreciable property of small businesses (phases out when more than $2 million of property is purchased.)
  • 15 year depreciable life for qualified leasehold improvements, qualified retail improvements and qualified restaurant property. $250,000 limit for Section 179 expense election for these types of property.
  • Research tax credit.
  • Work opportunity tax credit.
  • 100% exclusion for gain from qualified small business stock for stock acquired during 2014 held more than five years.
  • Five-year recognition period for S corporation built in gains when the S corporation was formerly a C corporation.

Individual extenders

  • State and local sales tax deduction as an alternative to deducting state income taxes.
  • Above the line deduction for qualified post-secondary tuition and fees. (Phases out for joint filers with adjusted gross income (AGI) over $130,000 and singles with AGI over $65,000.)
  • Teachers above the line deduction for up to $250 of unreimbursed out-of-pocket classroom expenses.
  • Exclusion of up to $2 million ($1 million for married, filing a separate return) of cancellation of indebtedness income of qualified principal residence indebtedness.
  • Treatment of mortgage insurance premiums as qualified residential mortgage interest, subject to AGI phaseout.
  • Exclusion of up to $100,000 of distributions from an IRA directly to a charity for taxpayers over age 70 1/2.
  • Exclusion of up to $250 of employer-provided mass-transit benefits (to be the same as employer-provided parking benefits.)
  • Special treatment of charitable contribution of real property for conservation purposes allows contribution to be taken up to 50% of the contribution base.
  • The nonbusiness energy property credit for making qualified energy improvements to residential property.
  • (Note the plug-in electric vehicle credit was NOT extended.)

Achieving a Better Life Experience (ABLE Act)

  • Establishes a tax-favored savings account for individuals with disabilities for tax years beginning after December 31, 2014.

Budget – FY 2015 Omnibus Funding Agreement

  • The budget passes for fiscal year 2015 continues a trend of reducing funding for the Internal Revenue Service. The fiscal year 2015 budget for the IRS is $10.945 billion, which is $346 million less than for fiscal year 2014. Considering the IRS is facing increasing enforcement challenges, including implementing health care reform, and the IRS is responsible for collecting the funds that finance every other government agency, this doesn’t seem like a wise decision.

These are only highlights of major changes recently enacted. See your tax advisor for details about how the extender legislation will affect you.

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(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)

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