The on-again, off-again nature of the federal tax provisions traditionally known as tax extenders is leading to uncertainty and unnecessary complexity, according to tax policy experts at the American Institute of CPAs.
With 2014 approaching, CPAs are busy meeting with clients to discuss year-end tax planning, and the uncertainty over what is happening with the tax extenders is making those consultations more difficult. Typically, as a part of that process, we will discuss with clients transactions and the timing of those transactionsshould it be before year end or after year end, for examplebut that process is especially difficult with 57 tax provisions expiring on December 31, said AICPA Tax Executive Committee chair Jeffrey A. Porter in a statement. It is challenging to advise clients if you do not know what the tax laws will be in 2014.
Some of the expiring tax extenders are significant, noted AICPA vice president for taxation Edward Karl. For businesses, these include increased expensing under Section 179, where the limit is dropping from $500,000 to $25,000, the 50 percent bonus depreciation, the Work Opportunity Tax Credit, and the credit for research and development expenses.
The on-again, off-again nature of the expiring provisions creates a lot of uncertainty, and that uncertainty then creates more complexity in the tax code, said Porter. Its not unusual for the expiring provisions to be reinstated retroactively, also adding to the uncertainty and the complexity for long-term planning. Many taxpayers have come to anticipate that these expiring provisions are going to be retroactively reinstated. If theyre incorrect, that can prove to be a very costly decision for a small or medium-sized business. And the impact is not just limited to businesses. There are a number of individual provisions that are expiring, such as the deduction for state and local sales tax, the above the line deduction for tuition and tax-free distributions from individual retirement plans for charitable purposes.
Karl anticipates lawmakers will consider the tax extenders at some point, but that the timing is uncertain. We encourage Congress to act now to either extend the provisions or to signal that it intends to allow them to expire, he said. We also urge Congress to make permanent those provisions that it intends to extend. In addition, we encourage Congress to enact future tax changes with a presumption of permanency, except in rare situations in which there is an overriding and explicit policy reason for making provisions temporary, such as short-term stimulus provisions or when a new provision requires evaluation after a trial period.
For a complete list of the expiring provisions, click here.
Michael Cohn is the editor-in-chief of AccountingToday.com.