On February 5, 2016, the IRS released an update to the Protecting Americans from Tax Hikes (PATH) Act of 2015, which was passed in December, citing new inflation adjustments effective for tax years beginning in 2016. The inflation adjustments focus on educator expenses, transportation fringe benefits, and the expensing of depreciable assets under Code Section 179.
The allowable deduction by an eligible educator for books, supplies, equipment and supplementary materials used by the educator in the classroom is $250. Eligible equipment includes computers, related software, and services. Prior to passage of the PATH Act, computer expenses were not considered a qualified cost.
Qualified Transportation Fringe Benefit
The monthly limitation for qualified transportation fringe benefits for transportation in a commuter highway vehicle and any transit pass is $255.
Section 179 Election to Expense Certain Depreciable Assets
The limitation threshold under Section 179 will increase from $2,000,000 to $2,010,000 for property placed into service in tax years beginning in 2016. The allowable deduction remains at $500,000. The $500,000 limitation is now reduced by the amount of costs exceeding $2,010,000.
Employees should be informed of the new transportation fringe benefit rate so that they can decide whether or not to increase their pre-tax transit withholdings for the remainder of the year.
Regarding the Section 179 deduction, the $10,000 threshold increase provides an added tax benefit for taxpayers who invest in equipment, machinery, or may be considering office renovations.
Should you have any questions how these inflation adjustments will effect you or your business, contact your Marcum tax professional.