Tax extenders, temporary tax provisions that are reinstated by Congress on a regular basis, have been a recurring part of the tax arena for years. Most of the current group up for debate have expired at the end of 2013, and their eventual extension will be retroactive, but not all will be extended. Here’s what you need to know…
What’s Expired?
Section 179 Expensing: For tax years beginning in 2012 and 2013, the maximum Section 179 deduction was $500,000. The maximum dropped to $25,000 for tax years after 2013. Extender legislation would restore the enhanced amount and phase-out threshold under Section 179, as it was prior to 2014.
Option to Deduct State and Local Sales Taxes: Prior to 2014, taxpayers were allowed to deduct state and local sales and use taxes in lieu of state and local income taxes on Schedule A.
Above-the-Line Deduction for Higher Education Expenses: This deduction was $4,000 for taxpayers with adjusted gross incomes of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns).
These are just a few of the many tax provisions that expired at the end of 2013. Even though the tax extenders have been known since the end of last year, and there is general bipartisan agreement that they need to be acted on, there is no guarantee as to when they will be passed.
What’s Being Done?
The Senate passed a comprehensive extenders bill, the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, in April 2014. The bill would extend for two years over 50 expired provisions. The House, on the other hand, has focused on permanent extension of tax provisions in a series of bills. Added to the mix, of course, is President Obama, who has threatened to use his “veto pen” on legislation he doesn’t like.
The New York Times recently reported that negotiators from the Senate and the House of Representatives were nearing a deal to make major tax breaks permanent for business and college expenses.
What Does It Mean For Me?
Businesses would like to know for tax planning purposes, and the IRS would like to know so they can get out the forms and program their systems on time. Preparers would like to know so tax season begins on time.
Depending on how long it takes for an official ruling, it’s likely that tax season may be delayed. You probably remember when the fiscal cliff delayed tax season at the beginning of 2013. The delay in legislation and with the IRS affects everyone equally.
Until the tax extenders are agreed upon, tax software can’t be updated, the IRS can’t accept tax returns, and financial institutions may not even be able to send out tax forms.
All in all, a delay on tax season also means a delay on refunds. Hopefully Congress can come to a conclusion quickly, and we’ll see only a minimal impact on the beginning of the 2015 filing season.
