As has become the norm, unfortunately, in recent years, taxpayers are once again left this year to speculate on whether or not Congress will extend several tax provisions that affect businesses and individuals. It has become accepted for our elected leaders to conveniently put off their obligation to deal with these issues each year until after the November elections. Recently, these issues were put off even until New Year’s Eve which prevented businesses and individuals from making crucial strategic decisions due to the lack of clarity in the tax law. The delay in addressing these issues also can create problems and delays in the start of the tax filing season as well.
Some of the more prominent tax provisions that have effectively expired as of January 1st of 2014 unless Congress retroactively extends them later this year are as follows:
1. Premiums for mortgage insurance deductible as interest that is qualified residence interest.
2. Deduction for qualified tuition and related expenses.
3. Credit for health insurance costs of eligible individuals.
4. Work opportunity tax credit.
5. Deduction for certain expenses of elementary and secondary school teachers.
6. Discharge of indebtedness on principal residence excluded from gross income of individuals.
7. Deduction for state and local general sales taxes.
8. Additional first-year depreciation for 50 percent of basis of qualified property.
9. Increase in expensing to $500,000/$2,000,000 and expansion of definition of section 179 property.
10. Tax-free distributions from individual retirement plans for charitable purposes.
For businesses, the biggest problem above is the fact that taxpayers don’t know what the section 179 depreciation deduction limit will be for tax year 2014. The expense limit for 2013 was $500,000. With the expiration of this provision effective January 1, 2014, the limit has, by default, been reduced back to the limit from years ago of a mere $25,000. This uncertainty forces business owners to make new equipment decisions in 2014 not knowing if the purchases will be eligible for full expensing under section 179. If business owners knew the limit for the year early in the year, they would be more likely to pull the trigger on buying new equipment, as needed. This would be a boost to the economy which still struggles currently.
For individuals, the largest issues deal with the deduction of mortgage insurance premiums, the deduction of tuition and related expenses and the exclusion of the discharge of indebtedness on a principal residence.
Please contact us if you have any questions or would like to discuss how any of the items listed above may affect your tax situation for 2014.