Tax Extenders Bill Passes – With Two Weeks To Spare

Irs Federal Income Tax Forms 1040 And Schedule DBusinesses, individuals, and CPA’s around the country got an early holiday gift today as the Senate passed a tax extenders bill the President is expected to sign into law later this week.

The extender bill is quite similar to most we’ve seen in the past – this is the 6th tax extender bill passed near (or after) the end of the year in the last decade. This one puts back into place as of 1/1/14 a large number of benefits popular among taxpayers, but only keeps them in place through 12/31/14, so this debate will come again next year, but we’re happy to have these for now.

Among the more popular items extended for 2014:

  • $500,000 Section 179 limitation with a $2 million investment cap, up from the $25,000/$500,000 that would have been
  • 50% bonus depreciation on new fixed assets in service by 12/31/14
  • The Research and Development Tax Credit
  • Exclusion from income up to $2 million of debt forgiven on a principle residence foreclosure or short sale
  • $250 deduction for out of pocket expenses for teachers
  • Option to deduct sales taxes instead of state and local income taxes
  • Deduction of certain mortgage insurance premiums
  • Deduction of up to $4,000 for higher education tuition and fees
  • Ability to transfer up to $100,000 from an IRA to a charity with no tax
  • Ability to deduct up to $250,000 of qualified leasehold improvements up front
  • 15-year life for qualified leasehold improvements

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Waiting on Tax Renewals – In Santa’s Bag?

Irs Federal Income Tax Forms 1040 And Schedule DAs the end of the year approaches, we’re seeing the usual jockeying by Congress to clear their calendar of easy items before they all head home for the holiday break, and come back to a lame duck Congress and a President with nothing to lose. In all of this, the one thing missing so far is a tax extension bill.

The House and Senate had reached a compromise a few weeks back to extend the expired tax breaks in the short run, but that bill was threatened with veto by the President who thought it favored businesses and the wealthy over middle and low income Americans. The President also wanted extensions on the middle and low income tax breaks to run through 2018, an apparent attempt to keep a future Republican President and Congress from undoing what he’s done. This bill is dead.

Now, there is another bill coming out of the Republican controlled House to simply extend all of the expired items for the 2014 tax year, but Senate Majority Leader Harry Reid has indicated that it might not come up in the Senate, as they need to pass both a bill to fund the Federal government and a military funding bill before they can get to the tax extenders.

Either way, this will be yet another year that doesn’t see the tax code actually resolved until well after the end of the year, meaning confusion for taxpayers. Stay tuned.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

No Foolin’ – Taxes Due Two Weeks From Today

April Fool’s day happens to mark the Minnesota Twins Home Opener, as well as the two-week warning on the regular tax season.  Individual, Partnership, and LLC tax returns are due two weeks from today.

We’re in high gear here at Ramsay, working hard to meet that deadline.

Any tax returns not completed by the 15th can be put into post-season extension status, allowing an additional five months to file the business returns, and another six months to file the individual tax returns.  It’s just an extension to file though, and not to pay, so if your tax return needs to be extended, you’ll have to pay in any estimated balance due by the 15th of April.

As always, we’re here to answer your questions and guide you through tax season, usually without the mixed sports metaphors.

Breaking News – Tax “Fiscal Cliff” Avoided

In the early morning hours of New Year’s Day, the U.S. Senate passed a bill to deal with the tax increases associated with the “Fiscal Cliff”.  The House passed the same bill late last evening, and the President has said he will sign the bill into law.  The law contains changes for both the year just ended and the New Year just begun.  The following are the items that apply to most of our readers for the 2012 year. Our next post will detail those effective for 2013 and beyond.

Individual Changes Effective for 2012

  • The Alternative Minimum Tax (AMT) has been fixed permanently to prevent middle-class taxpayers from falling into its higher tax rates. The AMT kicks in on AMT taxable income of $50,600 for individuals and $78,750 for married couples filing jointly. These amounts will be increased to match inflation.
  • In addition, all personal tax credits can be used against both regular and AMT taxes going forward.
  • The American Opportunity Tax Credit, which allows for up to a $2,500 Federal tax credit for the first 4 years of college expenses has been extended through 2017.
  • Also, the above-the-line deduction for tuition and fees of up to $4,000 has been revived for 2012 and continues for 2013.
  • The above-the-line deduction of up to $250 for elementary and secondary school teachers has been revived for 2012 and continues for 2013.
  • The option to deduct state and local sales taxes in place of state and local income taxes is revived for 2012 and continues for 2013.
  • The treatment of mortgage insurance premiums as deductible home mortgage interest is revived for 2012 and in place for 2013.
  • Increased Earned Income Tax Credits and Child Tax Credits are extended through 2017.
  • The tax credit for certain energy efficient home improvements and for energy-efficient appliances is revived for 2012 and in place through 2013.

Business Changes Effective for 2012

  • The following depreciation items are made effective for equipment placed in service from January 1, 2012 through December 31, 2014
    • 15-year life on qualified leasehold improvements, qualified restaurant buildings and qualified retail improvements.
    • Increased Section 179 limitations and the treatment of certain real estate property as eligible for Section 179 treatment.
  • The Research and Development Tax Credit is revived for 2012 and extended through 2013.
  • 100% exclusion of gain from the sale of qualified small business stock is in place for shares acquired before January 1, 2014.

Now comes the scramble of the states to choose whether to go along with the changes made by the Federal government, and the IRS and tax preparation software providers to update their systems and get the changes rolled out.  We’ll keep you up to date on when we can start getting 2012 tax returns prepared.

Fiscal Cliff Update

As we near the end of the year, there are a large number of things still in flux, mostly related to the so-called “Fiscal Cliff” of tax increases and spending cuts.  Congress and the President are negotiating to avoid the Cliff, since most believe allowing the country to “go over” would push the economy back into recession.

What does this mean to you, you might ask?  Below is a list of the benefits that are already expired for 2012 (or will expire at the end of this year) unless Congress acts to reinstate them.  This is just a partial list of the items most likely to effect the average taxpayer.

  • The 10% tax bracket for the lowest income Americans moves to 15%.
  • The highest tax bracket will move from 35% to 39.6%
  • Interest and dividends will be taxed at ordinary income tax rates, rather than a maximum tax rate of 15%
  • Capital gains will be taxed at a maximum of 20%, rather than the current maximum of 15%.
  • Nearly 26 million more Americans will pay the “Alternative Minimum Tax” or AMT, which eliminates many tax deductions otherwise available and uses only two tax rates – 26% and 28% – to calculate Federal tax.
  • Adoption benefits provided by employers to assist employees with the cost of adoption will no longer be excluded from taxable income.
  • Tax-free tuition assistance provided by employers to their employees of up to $5,250 will not be allowed.
  • The 2% reduction of the employee’s portion of Social Security will expire, essentially reducing take-home pay by 2% for those earning up to $113,700.
  • The up-to $4,000 deduction for tuition and fees will not be allowed.
  • Mortgage insurance premiums will no longer be allowed as a deduction.
  • State and local sales taxes will not be allowed as a deduction in place of state and local income taxes, a provision that effects mostly those in states with no state income tax.

We’ll keep an eye toward Washington, and when there is a resolution to the Fiscal Cliff questions, we’ll bring you a full explanation.