Each December CPAs frantically try and assist their clients with year-end tax advice that will hopefully save tax dollars come the following April. At the same time, Congress makes the job more difficult by not finalizing tax law until right before their holiday recess. December of 2014 is no different.
A package of special tax breaks, also known as tax extenders, expired at the end of 2013. Every year or two for the last decade, the tax extenders expire, and every year or two Congress votes to extend them retroactive to the beginning of the year. The American Tax Relief Act of 2012, which was signed into law on January 2, 2013, extended these provisions which expired on December 31, 2011, retroactive to January 1, 2012 through December 31, 2013. (Confused?) So here we are again, with expired tax provisions which will most likely be extended once again back to the beginning of the year.
On December 2nd, the House of Representatives, passed a bill to extend the provisions and then went on vacation. The Senate departs this week on their vacation and expects to pass the law before the winter recess. All indications are that the President will sign the bill this week as well. So if all goes as planned, we will have these extenders in place for 2014. This also means that these provisions will expire on December 31, 2014, and we could be discussing this topic again in December 2015.
There are over 50 tax provisions included in the tax extender bill. For many businesses or property owners, the key extender with relation to tax planning has to do with tax depreciation. Under the bill, taxpayers will be able to expense 50% of new fixed assets (assets having a life of greater than one year) that are placed in service during 2014. The remaining cost is then depreciated over its useful life. This provision known as bonus depreciation isn’t the only item impacting depreciation. For business owners, the Section 179 deduction may permit up to $500,000 of expensing for capital expenditures. If the tax extenders were not in place, there would be no bonus depreciation and the maximum Section 179 deduction would be $25,000.
Other provisions that have been around for years that are part of the tax extenders include the research and development credit and the deduction for teachers who spend their own money on school supplies. For taxpayers underwater on their home mortgage, a tax provision to allow individuals to write off forgiven mortgage debt expired at the end of 2013. This provision is included as an extender for 2014, and so is the provision to deduct sales tax paid and college tuition.
Knowing how these deductions and credits will impact any tax plan becomes that much more difficult when the tax law is uncertain. For some reason Congress seems to enjoy putting accountants in this position and accountants seem to enjoy the process. If you have any questions concerning Congress’s action on the tax extenders, feel free to contact me at email@example.com
–John Rosenberger, CPA Sr. Tax Acct