taxes

Tax breaks dead until Congress revives them

A whopping 55 tax deductions, tax credits and other tax-saving laws are set to expire Dec. 31, according to a tally by the congressional Joint Committee on Taxation.

This hodgepodge of individual and business tax breaks -- some of which apply to large groups of taxpayers, others that are much more specific -- has been on the books for years.

But technically these laws are temporary.

Each has a specific end date, typically the conclusion of a tax year. For the most part, Congress has extended them year after year. That's why the collective bunch is referred to as "extenders."

Individual filers have seen extenders for years on the various tax forms they file at tax time. They range from a few hundred dollars in tax savings for teachers to thousands added to IRS bills of homeowners facing tax on mortgage debt that is written off by the loan holders.

Popular individual tax breaks scheduled to expire Dec. 31, 2013

Tax benefitType of tax break
State and local sales taxesDeduction
Private mortgage insurance premiumsDeduction
Educators' out-of-pocket expensesDeduction
Higher education tuition and feesDeduction
Residential home energy improvementsCredit
Rollover of IRA distribution to a charityIncome exemption
Mortgage debt forgivenessIncome exemption

Companies, too, are bemoaning the coming loss of several business tax breaks at the end of 2013. They include the 50 percent bonus depreciation option, a larger Section 179 write-off for some equipment, larger deductions for certain business charitable donations, research and development tax credits, and work opportunity tax credits.

Why only temporary?

A key reason behind the temporary nature of these persistent tax breaks is how they are accounted for in the federal budget. Rather than factoring in the many tax provisions' long-term costs, lawmakers opt to deal with the legislative continuances on a short-term, and therefore relatively less-expensive, basis.

Individually, many of the extenders are not that large of a cost in the overall federal budget scheme, but members of Congress regularly cite some of the more arcane tax breaks as examples of government waste.

And with recent Capitol Hill focus on the federal deficit, the costs of each tax break could be in for more scrutiny than ever before.

Retroactive laws tricky for tax planning

This year, talk of comprehensive tax reform has complicated the extenders issue. Many federal lawmakers would like to see these temporary tax benefits dealt with on a more long-term basis.

Then there is Congress' penchant for procrastination.

The House and Senate tend to let legislation pile up, often running out of time at the end of a session to complete it. In those cases, Congress can reauthorize the tax deductions and credits with a retroactive effective date.

That means that while a law might not be approved until the end of a tax year, once it is finally enacted it's as if the tax break had been in effect for the full 12 months.

On one hand, that's good. At least the tax benefit eventually is available.

However, when it comes to making effective year-round tax plans, such late laws cause headaches for taxpayers and tax professionals.

Business taxpayers contemplating any major equipment or software additions should consider making the acquisition before year's end if they have the income to offset it this year, says Janet Moore, CPA, co-manager of the tax department at the Tuscaloosa office of the Alabama accounting firm JamisonMoneyFarmer PC. "We know the deduction amounts for 2013, but there are no guarantees that these larger deductions will be available next year in 2014," she says.

2014 outlook

There is another complication when it comes to tax laws in 2014.

It is an election year. Conventional wisdom is that members of Congress seeking re-election would prefer not to have tax votes on the record that could be used against them by opponents.

On the other hand, the chairmen of the tax-writing committees -- Rep. Dave Camp, R-Mich., of the House Ways and Means Committee and Sen. Max Baucus, D-Mont., of the Senate Finance Committee -- have been traveling across the U.S. for much of 2013 seeking tax reform input from businesses and individual taxpayers. Next year is the last that Camp and Baucus will head their congressional panels, and each would like to enact some tax law change before handing over their committees' leadership reins.

Tax reform, however, is a massive undertaking. While the effort to overhaul the tax system could begin in 2014, a full rewrite of the tax code is not seen as likely in just one year.

"It may be several years before any major reform can be achieved," says Moore. "That likely means that extension of many of the temporary tax provisions that were extended for 2012 and 2013 will be delayed until very late in 2014, after tax reform efforts fail."

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