The mid-term elections are over, but -- as of this minute -- Congress has not tackled extending some tax breaks, i.e. that collective group known as the "Tax Extenders", which we address seemingly every couple of years. The concern is not only whether they pass or not, it is about when. Early agreement on these extenders is important to individuals and businesses and it is critical for a smooth, timely start to the tax season. One person that is particularly concerned, and knows a great deal about income tax, is the IRS Commissioner. Last month, in a letter to the Chairman of the Committee on Finance, he urged members of Congress to quickly address the expired tax provisions otherwise it "would be detrimental to the entire 2015 tax-filing season and to millions of taxpayers if Congress fails to provide a clear policy direction before the end of November."
These, currently expired tax provisions affect many taxpayers, including students, teachers, homeowners, business owners, and even commuters. For individual taxpayers, deductions and credits that deal with itemized deductions like charitable donations or state and local tax sales taxes, as well as other deductions such as the tuition and fees and teacher's unreimbursed classroom expenses are currently expired. They also affect taxable income. For example, taxpayers who were forced to let their house go during the Recession would face an increase in taxable income if their mortgage holder finally completed the foreclosure since the Mortgage Debt Forgiveness is included in the expired tax provisions. Businesses also lose because of the expiration many tax breaks such as bonus depreciation, the research and development credit, and the increased section 179 election.
Ideally, the extenders will be extended, again and soon, without changes. Because, at this point, worse than a delay, would be changes. While the IRS can "turn on" or "off" the extenders, since they have been dealing with extenders for years, changes could wreak havoc this late in the season. Changes mean: IRS software needs reprogramming, forms need changing, and tax preparation software needs updating. The IRS is on record indicating that a late bill will delay tax season. An already complicated tax year because of tax law changes and the new Affordable Care Act rules could be super-sized with a late passage of, or changes to, the extender tax provisions. What should you expect, what should you watch for, and most importantly, what should you do?
Watch the developments over the coming days as this will be a much-publicized issue. Regardless of the political drama and tax rule developments, before the holiday chaos really sets in, pull your tax records together, review your year and make notes to consider when preparing your return, and be ready to seek professional assistance if you need it.
Only time will tell if we a get a nice big "tax gift" and the extenders are passed before the end of the year or if all we get is a costly chunk of coal in the form of delayed passage or changes to the extenders. Millions of early tax filers could have to wait to file their returns; or worse, tax refunds could be lower than expected and tax owed could be higher than expected -- or planned for based on if, when, and in what form, extenders are passed.
