Congress Faces Taxing Issues As Year Draws to a Close

While taxes may not be on top of most people’s minds in November, now is the time when Washington’s actions affect what you pay in April.
By Chris Metinko ,

While taxes may not be on top of most people’s minds in November, now is the time when Washington’s actions affect what you pay in April.

“Every year Congress is faced with expiring tax provisions,” said Adam Fayne, a partner in the tax practice at Arnstein & Lehr in Chicago. “Rather than making these provisions permanent, they extend them for a year. Then the following year, they usually extend them again, for another year.”

Congress has yet to extend more than 50 popular tax provisions that expired at the end of last year. Depending on what they decide, individuals could lose benefits like the ability to deduct tuition or state and local sales taxes, and businesses could lose tax credit for research and development activities.

“Some big changes are still in store,” said Dustin Stamper, director in Grant Thornton LLP’s national tax office.

Stamper said that the outcome of whether or not Congress retroactively reinstates the more than four dozen provisions that expired at the end of 2014 will have a wide-reaching impact on a lot of people and organizations. Those affected by the provisions being reinstated include: taxpayers 70.5 years old and older who give to charity from their IRAs, businesses deducting half the cost of most equipment placed in service this year, teachers receiving an above-the-line deduction for $250 in classroom expenses, students and parents receiving an above-the-line deduction for tuition, companies receiving a credit for research and development and taxpayers in states without an income tax (like Washington, Texas and Florida) deducting state sales taxes.

“One of the most widely-misunderstood pieces of tax legislation is the 3.8% tax on net investment income under the Affordable Care Act, which went into effect in 2013,” Stamper said.

“First of all, it does not apply unless you have $200,000 in adjusted gross income — $250,000 if filing jointly," he added. "It also doesn’t apply to capital gains if the capital gain is excluded under another provisions in the code — such as like-kind exchange or the sale of a principal residence. But it does apply to income from any partnership or S corporation if the owner is passive, regardless of the kind of income."

Fayne added taxpayers also may not be able to deduct for mortgage insurance premiums, unless Congress extends the provision by the end of the year.

“These are just some examples of those tax provisions that expired at the end of 2014,” Fayne said. “Congress will need to enact tax extenders for taxpayers to take advantage of these provisions during 2015.”

Andrew Townsend, a tax analyst with Cedar Rapids, Iowa-based TaxACT, said people also can expect to see some new forms when tax time rolls around. Townsend said this year taxpayers can expect to receive Form 1095-Bs and/or Form 1095-Cs in the mail. The IRS has created the Form 1095 series to handle new reporting requirements under the Affordable Care Act.

“Many taxpayers will receive both 1095-B and 1095-C,” he said. “These 1095-B and 1095-C forms are not required to be attached or submitted with the tax return. If taxpayers had full-year coverage, they simply check a box on Form 1040 just like last year. If a taxpayer did not have full-year coverage, the information on these new forms can be used to report the months they were covered, if any.”

Despite the uncertainty, taxpayers can take heart in knowing this is not a particularly challenging year as far as changes to the code go.

“There have been fewer tax law changes this year than normal,” Stamper said.

“Tax legislators put most other tax legislation on ice while they worked on tax reform, which is still not very close to happening,” he added. “Most of the big changes that phased in after the 2010 health care reform law had also already taken effect.”

Stamper recommends that people visit govtrack.us and OpenCongress.org to monitor general legislative activity. 

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