It’s become an annual ritual for Congress: At the end of the year, lawmakers wrangle over which tax breaks to make permanent, which to renew, and which to let expire. Very rarely do tax breaks become permanent; instead, much time is devoted to arguing over which tax breaks are worth keeping, and which should be allowed to come to an end.
This can be a very stressful time of year for taxpayers and tax preparers (who are also taxpayers as well) alike. After all, it’s hard to plan for the coming year when you don’t know which tax breaks will be extended.
Of course, the fact that most tax decisions are made before the year in which they apply, these fights don’t usually affect the current season. What does affect the season, though, can be some of the dates involved, as well as certain policies that might take effect retroactively. In recent years, there have been times that the IRS has delayed accepting tax returns due to the fact that Congress hadn’t finished fighting over matters of tax policy.
Some of the provisions that Congress is considering are, in fact, retroactive. They expired on December 31, 2013, and if they are extended, they would be extended retroactively to impact the upcoming tax season.
What’s on the Docket This Year?
As 2014 draws to a close, taxpayers can look for battles over some of the following tax breaks and policy issues, some of which are “officially” expired, even though they might be extended after all:
- Tax-free IRA charitable distributions for those who are older than 70 ½ and are looking for ways around tax problems related to RMDs.
- A new exemption approval process for those who wish to avoid penalties through the PPACA.
- Deductions (itemized) for local and state sales tax.
- Certain corporate tax credits (President Obama is threatening to veto an extender).
- Expanded corporate capital write-offs for some small businesses.
There are dozens of possible changes to tax year proposed every year, most of them in the form of tax breaks, or changes to tax breaks. These changes are heatedly debated, as different interest groups look to gain an advantage.
Part of the reason that tax break extensions are so important has to do with the fact that taxes help fund many of our government operations. If tax breaks are extended, it means lower revenue. While we do see plenty of spending when it comes to the government, the reality is that politicians often try to put a check on the spending. This means that extensions in tax breaks mean that, somewhere, there has to be some sort of cut in spending. Those who rely on government assistance can find themselves in dire straits with these benefits taken from them. Additionally, there is the perception, when a tax break expires, that taxes are going up. Those that end up paying higher taxes are upset. Even though the situation is reverting back to the “normal” circumstance prior to the tax break, it’s hard to view things in that light when your bottom line is affected, and you are now paying more than you’ve gotten used to paying.
Once again, it should be an interesting end to the year, and you should keep an eye on the situation so you are aware of what tax breaks you are still eligible for.