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Latest Income Tax News

Will Your Favorite Tax Break Be Restored?

By Ashlea Ebeling, Forbes Staff
10/14/2014

Hoping for a big tax refund and one that’s on time? Call Congress. The fate of 50-plus tax breaks that expired at the end of December 2013 could determine when and how much you get as a tax refund when you file your 2014 tax return next spring. That’s because they include a bunch of individual breaks that help teachers, students, commuters, struggling homeowners, donors and conservationists. It could mean $250—or thousands–off your taxes.

The problem is Congress let these tax breaks expire on Dec. 31, 2013, leaving taxpayers in limbo. "You don’t know what the rules are going to be," says an exasperated Mel Schwarz, director of tax legislative affairs in Grant Thornton’s Washington D.C. office, adding, "It cheapens the entire tax system."

While businesses are bemoaning the uncertainty around big ticket breaks like the research and development tax credit and bonus depreciation, these are the major individual tax extenders at stake:

  • The deduction for state and local sales taxes.
  • Above-the-line deduction of up to $4,000 for higher education expenses.
  • Tax-free distributions from an Individual Retirement Account for charitable purposes (the IRA charitable tax rollover) for taxpayers over 70 ½.
  • A $250 above-the-line deduction for school teachers for supplies.
  • Parity for employer-provided mass transit and parking benefits ($250 a month, up from $130 a month).
  • The ability to exclude a discharge of residential mortgage indebtedness from gross income.
  • The deduction for mortgage interest premiums.
  • Enhanced rules for donating real property for conservation.
  • It’s déjà vu. There have been five, soon to be six retroactive extensions of most of these tax breaks, Schwarz counts. Twice relief came in October, two times in December (December 17th and December 20th) and most recently, in January (of the year after the tax breaks expired).

The American Taxpayer Relief Act (ATRA) of 2012, was signed into law on Jan. 2, 2013 (the extenders were made retroactive to Jan. 1, 2012 and good through Dec. 31, 2013). The Job Creation Act of 2010, was signed into law Dec. 17, 2010 (the extenders were made retroactive to Jan. 1, 2010, good through Dec. 31, 2011).

Three acts designed to deal with the financial bailout during the great recession were signed into law on Oct. 3, 2008 (the extenders were made retroactive to Jan. 1, 2008, good through Dec. 31, 2009). The Tax Relief and  HYPERLINK "http://www.forbes.com/health/" Health Care Act of 2006, was signed into law Dec. 20, 2006 (the extenders were made retroactive to Jan. 1, 2006, good through Dec. 31, 2007). The Working Families Tax Relief Act of 2004, signed into law Oct. 4, 2004 (the extenders were made retroactive to Jan. 1, 2004, good through Dec. 31, 2005).

One consequence of Congress’ faltering is that the 2015 tax filing season may not start on time, and that could mean delayed refunds. IRS Commissioner John Koskinen admonished Senate Finance Committee chairman Ron Wyden (D-Ore.) and his cohorts in a letter last week to take action on the extenders. "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."

Congress will address the extenders. "It’s just a question of when do the extenders get done," Schwarz says. At this point, nothing is going to happen until after the November elections when Congress reconvenes in the lame duck session. One possibility would be for the extenders to be added to the federal budget continuing resolution.  It’s also possible that they could move separately and maybe become a vehicle for other legislation.  A combination of extenders and emergency spending is also a possibility. Expect to hear that there’s no time for picking and choosing which extenders to drop and which to make permanent.

So that makes another temporary extension likely. My bet: another two-year extension covering 2014 and 2015. That leaves room for serious tax reform in 2015.