On January 1, 2013, the U.S. Congress and President Obama agreed to retroactively extend certain tax breaks that had expired on December 31, 2011 for 2 years. These extensions gave both individuals and businesses these tax breaks on their 2012 and 2013 tax returns. However, due to recent Congressional inactivity, these tax breaks have not been extended beyond 2013. Therefore, unless Congress enacts legislation to retroactively extend these tax breaks, the following are set to expire (or have been dramatically reduced) for 2014 or subsequent income tax returns:
- The option for indviduals to deduct state sales tax, instead of state income tax, on their Form 1040, Schedule A;
- The option for individuals to deduct on page 1 of their Form 1040, their allowable tuition and fees deduction (the option to take a tax credit for tuition and fees remains in effect);
- Tax-free IRA distributions to charitable institutions for individuals age 70-1/2 or over;
- The exclusion from taxation of up to $2 million of debt forgiveness income arising from an individual’s primary residence;
- The maximum annual Section 179 deduction of business equipment purchases will dramatically decrease from $500,000 to $25,000 for equipment acquired in tax years beginning after December 31, 2013;
- The 50% bonus depreciation allowance for new business equipment purchases will end for equipment purchased after December 31, 2013;
- The reduced 15 year depreciation life for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property; and
- The research tax credit for expenditures made to discover information that is technological in nature, which had previously been extended several times, is also set to expire.
Since it is very difficult to predict what a lame duck Congress may do in November or December, or what a new Congress may do early next year, individuals and businesses must do their 2014 year-end tax planning based on the assumptions that these expired tax breaks will not be extended in the near future.
We can help you navigate these confusing changes to assist with your 2014 year-end tax planning. Please contact Andrew Ross, CPA at Bedard, Kurowicki & Co., CPA’s at (908) 782-7900 or visit www.bkc-cpa.com.