Updated 11/19/2015: My article below addresses the bigger issue behind the annual tax-extender dance that takes place in Washington DC. Once again, we sit waiting for Congress to punch our card so that we can move off our seats. This is not just a current issue. It is an on-going large problem, and it is important that you understand what’s at stake. Please read below… RICK
There were 55 tax related items (deductions, credits, etc.) that expired on December 31, 2013. Here is a summary of the more well known:
- Section 179 Deduction on equipment purchases – Reduced to only $25,000 for 2014.
- 50% Bonus Depreciation on new equipment purchases – Expired.
- Sales Tax Itemized Deduction – Expired.
- PMI (Private Mortgage Insurance) Premium Itemized Deduction – Expired.
- Out-of-Pocket Expense Deduction for Educators – Expired.
- College Education Tuition & Fees Deduction – Expired.
These are the same tax provisions that have expired before, and then were extended… allowed to expire again, and then were extended again. These tax provisions have been dubbed “extenders”.
The cycle repeats. Mostly.
Just because Congress has historically extended these provisions in the past, we can’t count on them extending a key tax provision because they don’t always extend all of them, and they often tinker with them so that they are quite different than we are used to seeing.
This uncertainty hampers tax planning… for both individuals and businesses, and not just the current year, but for long term strategic planning as well.
I often hear different tax systems discussed, and each has its own merit. With a change in control of the Senate on November 4th, there is renewed talk of proposing tax reform next year.
But a tax system, any tax system, requires stability and I’m not sure that is possible with the “politics as usual” in Washington D.C.
Which goes back to the problem at hand.
Why does Congress deal with extender tax provisions over and over? Couldn’t Congress permanently extend these provisions without attaching deadlines? The answer is politics. The last time these provisions were extended, it was for a two year period and it was calculated that it would reduce revenue by $76 billion. This reduction would have been $400 billion if Congress made the changes permanent. Adding $400 billion to the National Deficit is politically unpopular. I guess $70 billion is okay because the tax savings are for the present and a political case is easy to make.
The point is, it’s not okay.
The National Debt needs to be addressed. And the Tax System needs to be stable. There is no easy, popular solution. It’s a tough job. But each politician knew that when they ran for office, and that is what we elected them to do.
Updated 12/5/2014, 12/17/2014 and 12/22/2014: The House passed a bill (the “Tax Increase Prevention Act of 2014”) that will extend most of the tax provisions discussed below on December 3rd, and the Senate passed it on December 16th. The President sign it on December 19th and it is now law. The good news is that we can now finish 2014 tax strategic planning with more confidence. The bad news is that this bill only addresses these provisions for 2014 and we will be in the same situation in 2015. This was not a fix. Attempts to reform the tax laws are being blocked by political interests. With each “extenders” passage, the real problem is passed off to the future and the cost to future tax payers. The conclusion of the post has not changed: Congress and the President are not doing their job. We need leadership that will do the right and difficult job. RICK