The start of 2014 also meant the expiration of 55 separate tax provisions that many of us have become accustomed to taking, and the inaction on Capitol Hill is leaving many of us in limbo.
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Losing deductions is a common occurrence, and some years they may be cut off only to be revived again a few years later. Or perhaps the limitations or rules behind the provision change over the years. For example, only within the last few years have homeowners had the option to deduct premiums paid for private mortgage insurance (PMI). Now that deduction sits on the shelf with the other 55 tax extenders awaiting a decision for 2014 and beyond.
A month ago a young couple was in my office and they were determined to purchase their first home but the numbers were tricky for them. It ultimately boiled down to their ability to write off PMI. The best I could do was shrug.
The sad part is that the public will likely not know which way the law will go until Congress makes a decision--and that usually occurs late in the year. At the end of 2012, the decisions about tax extenders were not made and signed into law until 2:00 a.m. Jan. 1, 2013. This left no room for 2012 tax planning whatsoever.
Back to the young couple: What will they do? Will they buy a house and hope that the favorable tax treatment will be extended? Will they blow off their decision because even if it is extended, it might not be renewed for 2015? They plan to have a child that year. Will this cause them to scramble to make ends meet? Will he have to add a nightly pizza delivery stint to his banking career to meet the demands of having a family?
For some reason, Congress does not see fit to either eliminate temporary tax provisions or make them permanent regulations. In some cases, like with the Child Tax Credit, they have finally made the provision permanent. But for many years it had to be renewed, sometimes at a credit level of $1,000 per child, sometimes at a level of $600 per child.
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Treating these tax regulations in such a manner becomes confusing not just for the general public but for tax professionals as well. It’s hard to keep up! There are more than 75,000 pages of tax code with which to contend. To add varying temporary tax laws to the mix, one year it’s on, next year it’s off, not only creates confusion, but an inability to plan for taxes.
Joshua Smith, an economic analyst with the Economic Policy Institute said in a February press release that “while some of these provisions have laudable goals, there are better ways to enact policy than by summarily extending temporary tax incentives.” He also claimed that between now and 2024, the annual cost of extending the 55 provisions is $46.6 billion.
“The tax extenders are the worst of both worlds -- bad public policy, implemented poorly. Even if there are some worthwhile provisions, they should not be blindly extended every two years alongside those that are completely unnecessary, or are inefficient or ineffective.”