The House and Senate have overwhelmingly passed a Tax Extenders Bill, which retroactively extends tax breaks that had previously expired at the end of 2014.
These tax incentives benefit both individuals and businesses. The bill now goes to President Obama, who is expected to sign it into law.
The following are some of the popular tax breaks that were set to expire in 2013 but are back for 2014:
Personal tax incentives
• Educator expenses: A small but very popular tax incentive that allows teachers and other educators to deduct up to $250 of out-of-pocket costs for classroom supplies.
• Energy efficiency home improvements: This popular tax credit applies to energy efficient windows, doors, furnaces, and other common home improvements. The overall credit is limited to $500.
• Mortgage insurance premiums: Individuals under a certain income limit can deduct the cost of mortgage insurance premiums they pay in 2014.
• IRA distributions to charitable organizations: Qualified Charitable Distributions allow for up to $100,000 of IRA distributions to be payable directly to a qualified charity from an IRA. These QCDs are beneficial as they are excluded from income and count toward required minimum distributions. This lowers an individual's taxable income, which could lower how much of your Social Security is taxable, or how much of your medical expenses are deductible.
• Debt forgiveness on principal residence: The exclusion for debt forgiveness on one's personal residence is available for 2014. This exclusion is useful to many individuals as a result of declining home values, short sales, and foreclosures.
Business tax incentives
• Business depreciation & expense limits: Businesses can once again immediately deduct up to $500,000 of depreciation for most equipment they purchase in 2014 (without the Tax Extenders Bill, the amount would have been $25,000). In addition, 50% bonus depreciation, which allows individual and business to expense 50% of the cost of new equipment in the first year.
• Research and development: The credit businesses receive for their qualified research expenses has been extended for 2014.
The bill extends the expiration date of tax provisions from 2013 to 2014, meaning that in two weeks we are back in the same situation where provisions have again expired. Besides the uncertainty of what the tax laws were going to be in 2014, and the short amount of time to act, the delay in passing the bill will most certainly delay the opening of tax filing season.
There is some talk about making these tax breaks permanent, or at least extending them into early next year. Stay tuned as we will continue to update you with new developments.
Steve Bjork is a manager in the tax department and a certified public accountant at Komisar Brady & Co. LLP in Milwaukee.