This is a terrific expert contribution from our friends at the Tax Armory. Attorney Matthew McMillan breaks down the recent tax extensions passed in Congress.
Have a read below…
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“Once bitten, twice shy,
I keep my distance but you still catch my eye.
Tell me Congress do you recognize me?
Well it’s been a year, it doesn’t surprise me.
Last Session, you extended some breaks,
The very next day, they all went away.
Next year to keep me from tears,
Don’t wait until late December.”
Tax professionals in Orlando gear up for tax season with the knowledge that, at long last, on Friday December 19th President Obama signed a Tax Extender Bill. As 2014 was winding down the blues of uncertainty lingered in the air. The election was finally over. The Congressional lame ducks flocked to DC and back again, finally delivering. Maybe next year, it will be a priority.
What is a Tax Extender Bill? It is common knowledge that the tax code is very complex. It is uncommon knowledge that the tax code is not permanent, by design. There are many provisions that are temporary. Deductions taken in 2013 may not be available to taxpayers in 2014. Congress must act to extend them. The problem is that lately Congress has delayed action delivering just in time for Christmas.
Delivered so late in the year, taxpayers simply do not know what the law is until after they have made almost all of their decisions for the year. Tax professionals want to help. When a client called and asked, “Private mortgage insurance is deductible, right?” or “I won’t be taxed on the discharged debt on the short-sale of my residence will I?” or “Can I distribute from my IRA to a charity tax-free?” the response, until very recently, was a very disappointing, “No, those provisions expired last year but hopefully the renewal will be in the Tax Extender Bill whenever Congress gets around to passing one.” The taxpayer was put in the position of trying to predict Congress.
Why the delay? Budget politics. Over the last decade, there have been numerous, predictable, crises relating to tax and budget issues. The first major crisis resulted from the “Bush Tax Cuts” In 2001 Congress passed a tax bill that gradually reduced rates over ten years, but only for those ten years. They were not permanent. Congress would spend a decade debating whether or not to make them permanent. For example, top income tax rates were scheduled to revert to the 2000 rate of 39.6% from 35% unless they acted before 2011. Would the tax hike happen or not? That was a dilemma for financial planning at the time. In 2010 a temporary fix allowed the tax increase for the top marginal rate, but extended the rest of the cuts. The pending expiration of that temporary fix led to the Fiscal Cliff Crisis that addressed most of the other tax issues. (But did not prevent the 2013 Debt Ceiling Crisis!)
Notice the unhealthy pattern? Crisis followed crisis, by design, scripting political drama. These were entirely predictable crises. Panic-Tinker-Punt-Procrastinate became the new order of business. Putting aside resolution of the worthwhile political arguments of spending cuts vs. tax increases vs. borrowing, what has been missing in the tax laws since 2001? Predictability.
The Tax Extenders Bill for 2014 follows this pattern. The provisions in the 2014 bill are a mixture of the good, the bad, and the necessary. An attempt to make some provisions permanent and extend the rest for two years died under veto threat earlier in this year. The whole bag gets extended for just one year. Congress says it will sort that all out next time. Score that as another punt
While Representative Alan Grayson touts his sponsorship of a bipartisan House Tax Extender Bill, but others in Congress recognize the shortcomings of the legislation in both substance and timing. According to Politco, Democrat Chairman of the Senate Finance Committee, Ron Wyden, voted against this bill saying “This tax bill doesn’t have the shelf life of a carton of eggs. The only new effects of this legislation apply to the next two weeks.” Florida Senator Bill Nelson stated, “I’d much rather have had a two-year bill so people had the certainty of planning for next year.”
Nevertheless, the deal is done. Will we find ourselves in the same position in late 2015? There is one reason to be hopeful. With Republicans in control of the Senate now as well as the House, Congress will put a bill on President Obama’s desk. Perhaps, after a veto or two, the circle of crisis will close with a compromise tax law, for better or worse, well before Christmas.
As the ball drops on 2014, a Congressional New Years Resolution should be to deliver the taxpayer a predictable tax code that enables planning.
Should old delay be forgot,
And never brought to mind?
Give us some peace in early spring
An Extender Bill to sign.
——
Matthew McMillan, JD, LLM is founding partner of Tax Armory, LLC where he represents clients with IRS contriversies. He currently serves as President of the Seminole County Young Professional Republicans.
Tags: alan grayson, bill nelson, florida political blog, frank torres orlando, matthew mcmillan, orlando political blog, orlando political news, tax armory orlando, The Feed
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