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The Tax Extender Benefits for Your Clients

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Many of your clients (and maybe you) are still playing catch-up with respect to the tax extender provisions that Congress made retroactively relevant for 2014. Here’s what you need to know.

Individual Clients

The Tax Increase Prevention Act of 2014 extended many valuable tax-savings tools for individual taxpayers, including the above-the-line deductions for up to $4,000 in higher educational expenses and up to $250 for supplies purchased by elementary and secondary school teachers.

The Act also revived a provision that allows taxpayers aged 70 ½ and older to make tax-free charitable donations directly from IRA accounts. For many taxpayers, this allows them to take their annual required minimum distribution (RMD) from retirement accounts without the corresponding increase in taxable income. The RMD rules require that a taxpayer begin taking distributions from IRAs once that taxpayer reaches age 70 ½. Because of this, many taxpayers are required to increase taxable income whether or not they need the extra funds.

The tax-free treatment of the charitable IRA rollover allows these taxpayers to take their RMD (up to $100,000 per year, or $200,000 per couple if each spouse has a separate IRA) without increasing their tax burden—as long as the funds are transferred directly to a qualified charity.  In the past, Congress has granted a window early in the following tax year to allow taxpayers to take advantage of the retroactive renewal in the previous tax year—unfortunately, Congress has shown no intention of granting a similar reprieve with respect to the 2014 extension.

Congress has also extended the deduction for state and local sales taxes. This provision allows individual clients to deduct their sales tax liability instead of their income tax liability, and is particularly useful for clients living in states with no state or local income taxes.

Small Business Clients

For small business clients, the tax breaks extended in December can prove particularly valuable, as Congress has extended the so-called “bonus depreciation” rules. The Section 179 depreciation rules permit small business clients to accelerate the deduction for the cost of depreciable assets of up to $500,000 (on purchases of up to $2.5 million) into the year of purchase, rather than depreciating those assets over their normal useful lifespan. On January 1, 2015, these limits decreased to $25,000 and $250,000, respectively.

The 50% bonus depreciation rule allows a small business to deduct 50% of the cost of new assets in the year of purchase, with the remaining cost spread over the useful life of the property. 

Congress also extended the research and development credit for the 2014 tax year—which can benefit many small business clients that have chosen to make these expenditures throughout 2014 despite the uncertainty over whether the credit would be renewed.


Many clients may be breathing a sigh of relief after Congress finalized the retroactive application of these favorable tax provisions—despite this, it’s important to note their limited applicability and to remember that the uncertainty began all over again once we rang in the new year.

Originally published on National Underwriter Advanced Markets. National Underwriter Advanced Markets is the premier resource for financial planners, wealth managers, and advanced markets professionals who provide clients with expert financial and retirement planning advice.

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