Small Business Taxes & ManagementTM--Copyright 2014, A/N Group, Inc.
The Senate has passed the Tax Increase Prevention Act of 2014 (the extenders package). It now moves on to the president who is expected to sign it. There aren't any real surprises here. The bill simply extends the provisions that expired at the end of 2013 retroactively for one year, through 2014. Thus, the provisions expire in two weeks.
The Senate also passed the Achieving a Better Life Experience (ABLE) Act. This Act creates a tax-favored savings account similar to an IRA, but for individuals with disabilities. We'll report on this shortly.
Will the provisions be extended again (i.e., through the end of 2015)? There's no question that some could be extended or integrated into major tax reform. But if the provision only applies to a limited number of taxpayers, best to take advantage of it currently.
We'll review the extenders package in brief by examining first the provisions that you can still act on before the end of the year. For example, the deduction for mortgage insurance premiums has been extended, but it's more than likely you've paid your premium monthly so other than making another payment before the end of the year, there isn't much you can do to affect your 2014 taxes.
State and Local Sales Tax Deduction
Once again you can deduct state and local sales taxes as an alternative to income taxes on your return. Year-end purchases of any item works if you track individual items. If you use the table amount you can add the sales tax on a car, boat, etc.
Mortgage Debt Exclusion
Cancellation of all or a portion of a debt is generally taxable income. You can exclude the forgiveness of up to $2 million ($1 million for married, separate) of debt on a principal residence.
Charitable Distributions from IRAs
The provision that allows you to make a charitable contribution from your IRA of up to $100,000 has been extended. No deduction for the contribution, but the distribution does not produce taxable income and doesn't affect your adjusted gross income (AGI). That could produce tax savings for many individuals.
Higher Education Deduction
Once again you can take qualified higher-education tuition as an above-the-line deduction. The limit is unchanged at $4,000, as are the phase-out amounts. Year-end payments qualify if the academic term starts before March 31.
Contributions of Real Property for Conservation Purposes
It may be too late to consummate such a contribution before the end of the year, but if it was ready to go you may be able to pull the trigger. The provision allows capital gain real property contributed for conservation purposes to be used as a contribution subject to the 50% limitation.
The other provisions applying to individuals that have been extended include:
Section 179 Expensing
The dollar limit for expensing qualified assets (generally, tangible personal property) is back to $500,000. The deduction limit is phased out if a taxpayer's total qualifying expenditures exceeds $2 million. (The limit returns to $25,000 in 2015 unless extended.) Year-end purchases can save taxes, if placed in service before January 1, 2015. Don't forget, there are restrictions for autos, certain trucks and vans, and SUVs. The higher limits ($11,160 not $3,160 for passenger autos) will apply.
The 50% bonus depreciation rule has been extended through the end of 2014 (2015 for certain property with a long production period). Again, year-end purchases can generate big writeoffs. The amount is equal to 50% of the cost plus the amount of first-year depreciation on the remaining 50%. Applies generally to tangible personal property, not buildings or other real property. Check the rules. The placed-in-service requirement is the same as for Section 179 property. Auto limits apply here too.
Qualified Leasehold, Retail and Restaurant Property
You may be able to use Section 179 expensing on qualified leasehold, retail improvement, and restaurant property if placed in service by December 31, 2014. There's a limit of $250,000 on qualifying property.
Research Tax Credit
The credit for qualified expenditures related to basic research has been extended. The extension applies to both the 20% and 14% alternative credit. The credit has not been made permanent.
The other provisions applying to businesses that have been extended include:
We've covered most, but not all provisions. If you're unsure about any provision, talk to your tax advisor before taking action. Since there's basically no change from what most tax professionals anticipated, any pre-release tax software you have for 2014 should take into account the extension. It also means that the upcoming tax season should not be materially impacted by the down-to-the-wire action by Congress.
Copyright 2014 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 12/17/14