Trade Legislation Tax Changes: Important 2016 Update

Many laws were passed in 2015 which impact you and your business in 2016 and beyond. Many of the trade legislation tax changes include law changes that seemingly have nothing to do with trade. Listed below are four major pieces of legislation that could impact you beginning in 2016.

Trade Facilitation and Trade Enforcement Act of 2015 P.L. 114-125 (2/24/16)

Sec 901 - The Act amends the Tariff Act of 1930 to increase from $200 to $800 the general de minimis aggregate fair retail value in the country of shipment of duty-free articles imported by one person on one day.

Sec 909 - This section is basically an affirmation of the United States' continued free trade with Israel. Israel remains America's dependable and democratic ally. The United States will continue to combat all elements of the Arab League Boycott of Israel.

Sec 912 - Repealed the tariff classification of recreational performance outerwear as enacted as Sec 601 of the Trade Preferences Extension Act of 2015 P.L. 114-27.

Sec 914 - Provides amendments to the Trade Priorities and Accountability Act of 2015. Sec 914 (c) effectively eliminating fishery subsidies that distort trade, while reducing or eliminating incoming tariff and nontariff barriers. And it is imperative to report illegal, unreported and unregulated fishing.

Sec 915 -Trade preference for Nepal is enacted. New market opportunities are provided for US citizens as part of these trade legislation tax changes.

Sec 921 - Increases the penalty for failure to file a return of tax from $135 to $205.

Sec 922 - Creates a permanent moratorium on internet access taxes until June 30, 2020. The bill amends the Internet Tax Freedom Act to make permanent the ban on state and local taxation of internet access and multiple or discriminatory taxes on electronic commerce.

Trade Preferences Extension Act of 2015 P.L. 114-27 (6/29/15)

1.  Extends and modifies the health coverage tax credit (HCTC). Section 36B provides a credit equal to 72.5% of the amount paid by certain taxpayers for Health insurance coverage. This provision extends this credit through 2020.

2. As part of trade legislation tax changes, the Act amends Section 24 to provide that taxpayers who exclude the foreign earned income under Section 911 cannot claim the child tax credit. This goes into effect for tax years beginning in 2015.

3. There are three education tax credits: American Opportunity, Hope, and Lifetime Learning Credit. In order to claim these credits, you must receive a payee statement, form 1098-T, containing the required information. This requirement goes into effect for 2016.

4. As a fund raising tactic, the Act increases the corporate estimated tax payment due July, August, or September 2020 by 8% and decreases the subsequent quarterly payments by the same amount.

5. There is penalty relief for higher education institutions unable to provide TIN numbers as required on filings of information returns. This provision is effective for statements required to be filed after 12/31/15.

6. There is an increase in penalties for failure to file correct information returns and failure to provide payee statements. This is in effect for returns and statements required to be filed after 12/31/15. It applies to various forms from the W-2 to 1099s, 1095s, and so forth. The current penalty of $100 per return in increased to $250. For failure to file corrected returns, the penalty is increased from $50 per return from $30.

Defending Public Safety Employees' Retirement Act P.L. 114-26 (6/29/15)

Sec 2 - Generally taxpayers who receive an early distribution from a qualified retirement plan are subject to a 10% penalty, unless an exemption exists. One of those exemptions is for qualified public safety officers. The Defending Public Safety Employees' Retirement Act expands the exemption to include certain federal law enforcement officers, federal firefighters, customs and border protection officers, and air traffic controllers. This provision in the law applies to distributions made after December 31, 2015.

The Act also eliminates the restriction that only distributions from governmental plans that are defined benefit plans qualify for the exemption, thus allowing an exemption of distributions from defined contribution plans and other types of governmental plans.

Sec 102 - Declares the overall trade negotiating objectives of the United States, with respect to any agreement with a foreign country, is to reduce or eliminate existing tariffs or nontariff barriers of that country or the United States that are unduly burdening and restricting of US trade.

Consolidated Appropriations Act, 2016 P.L. 114-113 (12/18/15)

This Act authorized $1.1 trillion in spending, as well as $600 billion in tax breaks over the next 10 years. The Act provided funding through September 30, 2016 as well as trade legislation tax changes, and miscellaneous provisions.

1. The Act delayed implementation of taxes on premium health care plans, also known as the "Cadillac tax", as well as upcoming taxes on medical devices. The Cadillac tax was delayed from 2018 to 2020. The 2.3% tax on medical devices was paused until 2017.

2. A rider added to the Act, was one ending a 40 year old ban on US exports of crude oil. Proponents say that this will boost American energy producers by allowing them to compete on the global market.

3. A five year extension of tax credits for solar and wind energy was given.

4. The Act included provisions of the Cyber-Security Information Sharing Act and information sharing cyber-security legislation. The Act quietly chipped away even further at constitutional personal information protections.

5. A number of other tax breaks are made permanent, such as business research and development, small business expenses, individual deductions for state and local sales taxes, and financing rules for multinational corporations. Child tax credit, and the earned income tax credit, charitable giving and schoolteacher deductions, also became permanent under this law.

The Act, also known as the Protecting Americans from Tax Hikes Act of 2015 (PATH) provided the following permanent extensions:

• American Opportunity tax credit
• Deduction for certain expenses of elementary and secondary school teachers
• Transit benefits parity
• Deductions for state and local sales taxes
• Reduced earnings threshold for additional child tax credit
• Modification of the earned income tax credit
• Tax-free distributions from individual retirement plans for charitable purposes for individuals age 70 1/2 or older

The PATH Act also provided the following permanent extensions for business:

• Research tax credit
• Enhanced expensing under IRS Code Section 179
• Charitable deduction for contributions of food inventory
• Basis adjustment to stock of S Corps making charitable contributions of property
• Reduction in S Corp recognition period for built-in gains tax
• Employer wage credit for activated military reservists
• 15 year straight-line depreciation of qualified leasehold improvements
• Exclusion of 100% of gain on certain small business stock

The PATH Act extended additional tax provisions without making them permanent. The year of expiration of extension varies:

• Bonus depreciation
• Work Opportunity Tax Credit (WOTC)
• Higher education tuition and fees deduction
• Energy incentives
• Special expensing rules for television and film productions

Trade legislation tax changes include trade changes, tax changes, and changes seemingly having nothing to do with either. Check in with your tax advisor on anything noted here that has raised questions or concerns for you.