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 are the best bets.
Beware of Expiring Tax Breaks
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.
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.
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. Following is a list of extenders most likely to be passed, either in the upcoming lame-duck session or early next year.
This perennial extender, also known as the research tax credit or the research and experimentation tax credit, was available as either a 20 percent traditional research tax credit or a 14 percent alternative simplified credit.
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.
Bonus First-Year Depreciation
This tax break was available at a 50 percent rate for qualified property placed in service prior to 2014.
Food Donation Tax Deduction
This deduction, the enhanced charitable deduction for contributions of inventory, was enacted in response to Hurricane Katrina in 2005. It allowed a deduction for the contribution of food inventory by taxpayers that are not C corporations.
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.
Work Opportunity Tax Credit
The WOTC allowed businesses to claim a tax credit of 40 percent of the first $6,000 of wages paid to new hires of one of eight targeted groups, including members of families receiving benefits under the Temporary Assistance to Needy Families program, qualified ex-felons, qualified veterans, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients and long-term family assistance recipients.
Qualified Small Business Stock
The holder of such stock, acquired at original issue by a non-corporate taxpayer and held for more than five years, could exclude 100 percent of gain from its sale, rather than 50 percent of the gain, if acquired prior to 2014.
Credit for Energy Efficient Improvements to Existing Homes
The 10 percent credit for purchases of energy efficient improvements to existing homes allowed up to $150 for an energy efficient furnace, up to $200 for energy efficient windows, and up to $300 for other improvements such as insulation, with the total credit capped at $500 per taxpayer.
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).
Tax-free Distributions from IRAs for Charitable Purposes
IRA owners older than 70 1/2 could exclude up to $100,000 per year in distributions made directly from the IRA to public charities.
Offshore Tax Break
One extender that is unlikely to be passed is the look-through treatment of payments between related CFCs [controlled foreign corporations], according to Dean Sonderegger, executive director of product management for Bloomberg BNA Software. “It allows corporations to more easily move off-shore earnings across different borders,” he said. “If they move money back to the U.S., they have to pay tax. The rule is a way to get around some of the taxes. It’s very popular with international businesses, but I can’t see it making it through the legislative process in today’s environment.”