Temporary tax provisions that have been passed by Congress on an annual basis for several years are more commonly referred to as “tax extenders.” Most of the approximately 50 tax provisions that comprise the usual list of tax extenders were originally enacted as economic incentives; they were meant to encourage taxpayers to spend money in areas that would spur economic growth in exchange for a tax deduction or other beneficial tax position. Unfortunately, Congress’ habit of passing the tax extender legislation so late in the year tends to eliminate or greatly reduce taxpayer’s spending. The timing effectively changes tax extenders from tax planning tools to spending rewards.
So as taxpayers evaluate their current year tax positions and look to ways of reducing their current year tax bill, they need to ask themselves which tax extenders will likely be passed by Congress in the final days of this year that will be retroactive for the entire year. Just as investors speculate when they invest in the stock market, taxpayers will need to speculate which tax extenders will be available to them.
The House has passed several individual bills which would pass some of the tax extenders either temporarily or permanently, but the Senate continues to pursue a single bill that would pass certain tax extenders temporarily. If a taxpayer intends to speculate on the tax extenders that will ultimately be approved by both houses of Congress, they first need to know which tax extenders have the most broad based support. The tax extenders that appear to have the most support include:
- Increased Section 179 expense limit for deducting qualifying qualifying property (i.e., $500,000 with a phase-out beginning at $2,000,000);
- Bonus depreciation write-off of 50 percent for property acquired and placed in service;
- Shorter five year recognition period for determining built-in gains of a S-corporation;
- Research credit of 20% for qualified research expenses;
- Deduction to adjusted gross income for college tuition and fees for higher education;
- Deduction to adjusted gross income for educator expenses;
- Itemized deduction for mortgage insurance premiums;
- itemized deduction for state and local general sales taxes;
- Exclusion from income of the discharge of qualified principal residence indebtedness; and
- Tax-free charitable donation from an IRA of up to $100,000.
So as taxpayers review their current year tax situation and look for ways to reduce their anticipated tax bill, they should consider the preceding tax extenders when tax planning and evaluate the risk of their speculation that these tax extenders will ultimately be passed by Congress.
Contact Flexible Accounting Services of the Triangle today and discuss with our professionals your unique tax planning needs and which tax extenders could benefit you most.