Tax Extenders Set to Expire UPDATED

[kcjenkins]

It’s the time of year to again start thinking about expiring tax provisions. Usually the first thing that comes to mind is the alternative minimum tax, but this particular issue was “fixed” in January of this year by the fiscal cliff bill. That still leaves a number of expiring provisions, according to Robert Kerr, senior director of government relations at the National Association of Enrolled Agents.

Among them, Kerr noted, are the deduction for state and local sales taxes; the deduction for mortgage insurance as qualified interest; the above-the-line deduction for qualified tuition and related expenses; the above-the-line deduction for certain expenses of elementary and secondary school teachers; the Work Opportunity Tax Credit; the increase in expensing and the expansion of the definition of Section 179 property; the Research and Experimentation Tax Credit; and the 15-year straight line cost recovery for qualified leasehold, restaurant and retail improvements.

Every year the alternative minimum tax was at the head of the list of things that needed fixing, observed Kerr. “Each year that we didn’t have a fix, we had a growing number of people on the AMT bubble. It created a ‘whale tail’ when you paid for the patch. Since the increase in cost to pay for the patch wasn’t linear, it was exponential. It didn’t grow gently. Probably the piece that got our attention was there were some 20 million potentially affected out of the total population of taxpayers.”

There are a number of reasons that less attention is being paid this year to the extenders, Kerr indicated. “One reason is that AMT is no longer the engine that drives the extender train,” he said. The other is the overall legislative environment this year—the budget, the sequester, the shutdown, and talk of tax reform. At least the Ways and Means Committee had visions of managing the extenders within the context of tax reform.”

“The net is that we’re sitting here with 10 legislative days left in the year, and we don’t have any word on the extenders except for the notion that they will be included in the El Dorado of tax reform,” he said. “My take on that is tax professionals desire stability and predictability above all else, and the current state of affairs on extenders provides us with neither.”

Will Congress act before the end of the year to extend some or most of these?Will they all expire, only to be resurrected retroactively during the filing season—or in 2015? Or will they just expire, period?

“None of us should be surprised if we find ourselves in precisely the same situation as at the beginning of 2013, and proceed all the way through 2014 without knowing which ones will be retroactively extended,” said Kerr.

[easytax]

Agreed!

Question - yes I'm naïve -- and not meaning to be "political" as no party is mentioned, but as an overall question that has/continues to haunt me --- Our leaders are smart - educated people -- many in some kind of business or organizations that have "real" deadlines, etc. Why do they not see this in the context that -- their decisions (or lack of decisions) affect others and take time to implement?

Something as simple as a drop dead date --- where if changes to the tax code, regulations of any kind are NOT DONE by that date (date also builds in time to implement, change forms, etc.), then nothing changes until the following year, with no retro-active available to affect previous years. Again, the only thing I can come up with is that they believe ( as many criminals do too) that there is "profit in confusion" for them somehow.

A different idea would be appreciated --- again -- not politically but as a "real" question. I'm just out of "other ideas". Thanks.

[kcjenkins]

Ed, this is not intended as a 'political' issue, because frankly, both parties are guilty of playing games with the tax code, unfortunately Basically, I posted it as a reminder for us all, as we run into questions on these various tax items. But I agree, it's hard to explain why they can not at least get together on tax issues, and no matter what they end up doing, why can't they at least do something within a reasonable time frame, and stop messing everyone up with late and/or retroactive changes?

[Guest Taxed]

Just like we have deadlines by which we must act, politicians from both parties must be held accountable for dropping the ball. Us voters have to hold their feet to the fire!

[easytax]

Thanks folks.

It's nice to see I'm not alone in seeing this. It's also nice to understand I'm not just delusional and that others see it's both parties too.

[Jack from Ohio]

Our leaders are smart - educated people -- many in some kind of business or organizations that have "real" deadlines, etc. Why do they not see this in the context that -- their decisions (or lack of decisions) affect others and take time to implement?

.

I do not see, nor have seen this trait in Washington DC in over 40 years.... No evidence to support your position. Sorry....

[easytax]

I do not see, nor have seen this trait in Washington DC in over 40 years.... No evidence to support your position. Sorry....

Point taken ---- maybe a better way would be to say --- our leaders should be ...

:-) :-)

[mcb39]

According to CPE classes last week ;most extenders have been extended through 2014; some through 2017, but we all know anything can change by 2017. Much emphasis was placed on confidentiality and ethics; stressing disclosure statements attached to,but not included in engagement letters. Also, identity theft is a huge issue and one of their main issues of focus.

[JohnH]

Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.

- Mark Twain, a Biography

Congressman is the trivialist distinction for a full grown man.

- Notebook #14, Nov. 1877 - July 1878

All Congresses and Parliaments have a kindly feeling for idiots, and a compassion for them, on account of personal experience and heredity.

- Mark Twain's Autobiography; also in Mark Twain in Eruption

[kcjenkins]

According to CPE classes last week ;most extenders have been extended through 2014; some through 2017, but we all know anything can change by 2017. Much emphasis was placed on confidentiality and ethics; stressing disclosure statements attached to,but not included in engagement letters. Also, identity theft is a huge issue and one of their main issues of focus.

Although all those have been discussed, I do not believe they have yet been actually passed. Hope I am wrong, and someone can give me a cite. That article was based on info from Robert Kerr, senior director of government relations at the National Association of Enrolled Agents. And it's a current article.

[mcb39]

Legislation passed by Congress on Jan 1, 2013 and signed by the president on Jan 2, 2013, permanently extends several tax benefits by repealing the sunset date that applied to most provisions of the Economic Growth and Tax Relief Reconciliation Act and the Jobs and Growth Tax Relief Reconciliation Act of 2003. The American Taxpayer Relief Act of 2012 also extends through 2013 several temporary tax relief provisions originally enacted in the American Recovery and Reinvestment Tax Act of 2009. I have the cites for each of the credits but don't have the time right now to type them all separately and variously. Some expire after 2013; some after 2014; some after 2017 and some have been extended permanently (which means, don't hold your breath). Very few were allowed to expire.

[Guest Taxed]

We don't have to worry about those this tax season.

[mcb39]

We don't have to worry about those this tax season.

Yes, we do. Some of them expire with the 2013 tax filing season; and a very few are gone for good. It pays to be able to tell your clients which credits are still good for 2013, but will be gone next year. This is in the same vein as knowing when a client's child is going to turn 17 and reminding them that they are going to lose the Child Tax Credit. Sometimes they have to adjust their withholding accordingly.

[Guest Taxed]

We don't have to worry about those this tax season.

What I meant was the 2013 filing that we will do in 2014.

When I see my clients in Feb 2014, I will should have that information how it will impact their 2014 return to be done in 2015.

I completely agree with you on the caution of losing CTC when a child turns 17. I have a report that i run to give them a heads up and it is not a fun conversation. $1000 is a serious amount for most of my clients.

[kcjenkins]

Yes, Marilyn, that is exactly what I was referring to. As well as the warning that no matter what the actual rules are on 1/1/14, it could still change by 4/15/14, so we need to keep that in mind as we answer and advise them. Think like a lawyer and use lots of wessel phrases, too!

[kcjenkins]

CPAs Worried over Uncertainty in Expiring Tax Provisions

Washington, D.C. (November 21, 2013)

By Michael Cohn

The on-again, off-again nature of the federal tax provisions traditionally known as tax extenders is leading to uncertainty and unnecessary complexity, according to tax policy experts at the American Institute of CPAs.

With 2014 approaching, CPAs are busy meeting with clients to discuss year-end tax planning, and the uncertainty over what is happening with the tax extenders is making those consultations more difficult. “Typically, as a part of that process, we will discuss with clients transactions and the timing of those transactions—should it be before year end or after year end, for example—but that process is especially difficult with 57 tax provisions expiring on December 31,” said AICPA Tax Executive Committee chair Jeffrey A. Porter in a statement. “It is challenging to advise clients if you do not know what the tax laws will be in 2014.”

Some of the expiring tax extenders are significant, noted AICPA vice president for taxation Edward Karl. “For businesses, these include increased expensing under Section 179, where the limit is dropping from $500,000 to $25,000, the 50 percent bonus depreciation, the Work Opportunity Tax Credit, and the credit for research and development expenses.”

“The on-again, off-again nature of the expiring provisions creates a lot of uncertainty, and that uncertainty then creates more complexity in the tax code,” said Porter. “It’s not unusual for the expiring provisions to be reinstated retroactively, also adding to the uncertainty and the complexity for long-term planning. Many taxpayers have come to anticipate that these expiring provisions are going to be retroactively reinstated. If they’re incorrect, that can prove to be a very costly decision for a small or medium-sized business. And the impact is not just limited to businesses. There are a number of individual provisions that are expiring, such as the deduction for state and local sales tax, the above the line deduction for tuition and tax-free distributions from individual retirement plans for charitable purposes.”

Karl anticipates lawmakers will consider the tax extenders at some point, but that the timing is uncertain. “We encourage Congress to act now to either extend the provisions or to signal that it intends to allow them to expire,” he said. “We also urge Congress to make permanent those provisions that it intends to extend. In addition, we encourage Congress to enact future tax changes with a presumption of permanency, except in rare situations in which there is an overriding and explicit policy reason for making provisions temporary, such as short-term stimulus provisions or when a new provision requires evaluation after a trial period.”

For a complete list of the expiring provisions, click here .

[kcjenkins]

Expiring Provisions

JCX-3-13 (January 11, 2013) List Of Expiring Federal Tax Provisions 2013-2023

JCX-1-12 (January 13, 2012) List Of Expiring Federal Tax Provisions 2011-2022

JCX-2-11 (January 21, 2011) List Of Expiring Federal Tax Provisions 2010-2020

JCX-3-10 (January 29, 2010) List Of Expiring Federal Tax Provisions 2009-2020

JCX-20-09 (March 09, 2009) List Of Expiring Federal Tax Provisions 2008-2020

JCX-1-08 (January 11, 2008) List Of Expiring Federal Tax Provisions 2007-2020

JCX-1-07R (January 11, 2007) List Of Expiring Federal Tax Provisions 2006-2020

JCX-71-2004 (December 13, 2004) Description Of The Tax Technical Corrections Act Of 2004

JCX-1-2004 (January 21, 2004) List Of Expired and Expiring Federal Tax Provisions

JCX-1-03 (January 07, 2003) List Of Expiring Federal Tax Provisions 2002-2010

JCX-56-01 (June 20, 2001) List Of Expiring Federal Tax Provisions 2001-2010

JCX-1-99 (January 20, 1999) List of Expired and Expiring Federal Tax Provisions, 1998-2008

JCX-53R-98 (July 09, 1998) List of Expiring Tax Provisions, 1998-2007

[Guest Taxed]

>> Karl anticipates lawmakers will consider the tax extenders at some point, but that the timing is uncertain.

They will ponder these when they are carving the Turkey? They will most likely act by end of year as usual.

They usually are in no rush to do anything.

[kcjenkins]

Joint Committee on Taxation, List of Expiring Federal Tax Provisions 2013-2023 (JCX-3-13), January 11, 2013. This document can be found on the Joint Committee on Taxation website at www.jct.gov.

SOME OF THEM MOST RELEVANT TO INDIVIDUAL AND SMALL BUSINESS T/Ps

expires 12/31/13

14. Credit for construction of new energy efficient homes (sec. 45L(g))

15. Credit for energy efficient appliances (sec. 45M(b )

17. Employer wage credit for activated military reservists (sec. 45P)

18. Work opportunity tax credit (sec. 51©(4))

20. Deduction for certain expenses of elementary and secondary school teachers (sec. 62(a)(2)(D))

21. Discharge of indebtedness on principal residence excluded from gross income of individuals (sec. 108(a)(1)(E))

22. Parity for exclusion from income for employer-provided mass transit and parking benefits (sec. 132(f))

23. Treatment of military basic housing allowances under low-income housing credit (sec. 142(d))

24. Premiums for mortgage insurance deductible as interest that is qualified residence interest (sec. 163(h)(3))

25. Deduction for State and local general sales taxes (sec. 164(b (5))

27. 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail

improvements (secs. 168(e)(3)(E)(iv), (v),(ix), 168(e)(7)(A)(i) and (e)(8))

30. Additional first-year depreciation for 50 percent of basis of qualified property (secs. 168(k)(1) and (2) and 460©(6)(b )

35. Increase in expensing to $500,000/$2,000,000 and expansion of definition of section 179 property (secs. 179(b (1) and (2) and 179(f))

41. Deduction for qualified tuition and related expenses (sec. 222(e))

42. Tax-free distributions from individual retirement plans for charitable purposes (sec. 408(d)(8))

45. Treatment of certain dividends of regulated investment companies (“RICs”) (secs. 871(k)(1)© and (2)©, and 881(e)(1)(A) and (2))

49. Special rules for qualified small business tock (sec. 1202(a)(4))

We all know that many of these will, at some point, be extended although whether they will be identical at that point is not known. Also the current atmosphere of open warfare between the parties may delay the action on even these.

[kcjenkins]

My point here is that as TAX PROFESSIONALS, our clients expect us to know more than just "they will probably be extended". They still expect us to warn them of what MIGHT happen, as well.

[Guest Taxed]

My point here is that as TAX PROFESSIONALS, our clients expect us to know more than just "they will probably be extended". They still expect us to warn them of what MIGHT happen, as well.

You are correct. can't argue that.

But as has been the case in previous years, by the time i meet with my clients it has been extended.

Have you warned all your business clients? I have not and don't intend to until I start sending out the questionnaires with a cover letter. They go out between Christmas and New Year's.

[Lion EA]

Isn't that too late to change withholding, order equipment, etc.?

[Guest Taxed]

For all practical purposes it is if the sec. 179 limits drop to $25K next year. But I am confident that it will be extended.

[kcjenkins]

Given the ever-increasing appetite of government for revenue, even if extended, it may be extended at a lower amount.

[jshtax]

I tell them its the govt you are going to get screwed and if lucky they might get a kiss. Go out make all you can because you can't go broke paying taxes.