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expiring tax provisions

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NC posts on 2015 tax season delay, part 2

Let’s welcome the NC Department of Revenue to the party. They recently posted about the possible delay for filing some NC returns due to the late changes made by Congress and President Obama.

You can read the PDF here.

You can read my prior post here.

NC Department of Revenue released their PDF the same day I wrote my post. Now can we get the NC General Assembly involved?

 

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2015 NC tax season delay ahead

NC Legislature, courtesy of the NC General Assembly

Will the 2015 NC tax season delay be as long as it was in 2013? I hope not, waiting until March 13th to complete corporate returns due March 15th is not a recipe for a smooth filing season. Nor is waiting until March 13th for your individual refund to begin processing.

Some background

NC has a fixed date of conformity with the Internal Revenue Code (IRC). This means that NC’s tax law references the IRC as of a particular date and does not automatically adopt later changes. Congress finally passed the 2014 tax extenders law in December and the President signed it into law. You can see my prior post for details on the tax extenders but essentially Congress renewed a slew of tax deductions and credits that expired at the end of 2013. Many, but not all of the tax provisions Congress renewed retroactively could impact NC taxes.

Reason for the NC delay

The NC General Assembly does not plan to convene until January 28, 2015. With committee meetings, repeated votes in each chamber, and then waiting on the Governor, at a minimum, it will take at least a week to get some certainty from the General Assembly. Which provisions will they adopt, which will they modify, and which will they reject?

Back in early 2013 we faced a similar dilemma. The governor did not sign the conforming legislation until March 13, 2013. This essentially shortened the tax season to a little more than one month for many. Most individual taxpayers will not have to worry about the delay because they will not be taking advantage of the late Congressional tax law changes.

Who is most likely to have to wait:

  • Teachers claiming the deduction for classroom supplies.
  • Taxpayers excluding debt cancellation income on their principal residence.
  • Taxpayers claiming the exclusion of an IRA distribution directly to a charity. Based on what happened for 2013 taxpayers can expect NC to allow the exclusion but they should be able to claim the charitable deduction – subject to other rules. Add it back to income and then subtract it out, silly laws are not limited to the feds.
  • The deduction for qualified tuition and fees. I would not hold my breath on NC bringing this deduction back as NC did not allow it in 2013 when Congress did.
  • The deduction for mortgage insurance premiums. Again, I expect NC not to allow this deduction as NC did not allow it for 2013 when Congress did allow it.
  • Businesses claiming Section 179 deductions for tangible business property totaling over $25,000. NC did not adopt this provision for 2013 but they did create a way to claim the deduction over several years. We will have to wait to see what NC does with the excess Section 179. Deduct the excess all in 2014 or spread it out?
  • Businesses claiming bonus depreciation. NC has not allowed this deduction in the past but does allow taxpayers to claim the federal bonus depreciation over several years. Expect something similar or exactly the same for 2014.

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Expiring tax provisions, will Congress finally do their job?

Grand Bargain on tax extenders? Flickr by DonkeyHotey

Yesterday, I wrote about tax provisions that expired at the end of 2013. Still little action, other than bloviating, from Congress. But wait, six more federal tax provisions expire at the end of this year and 20 more expire after 2014. Instead of listing them all you can read the report (PDF). Just the highlights:

  1. The ability to get a refundable child credit for children under 17 years of age is restricted after 2017.
  2. The higher American opportunity education credit expires after 2017. We go back to the lower credits previously in effect.
  3. The Earned Income Credit of 45% for three or more children drops after 2017 to its prior level of 30%.Several alternative fuel provisions expire in 2014
  4. Several pension funding rules expire in 2014
  5. Aviation tax rates drop and other provisions expire in 2015. The taxes go into the Aviation Trust Fund for the maintenance, construction and safety of air infrastructure. If the higher rate is not restored, expect longer delays and more dangerous skies unless Congress comes up with an alternative funding mechanism.
  6. Higher Highway Trust Fund rates expire in 2016. This fund is used to finance interstate and other roads.
  7. Several other energy credits and provisions expire after 2014.
  8. The ability to get a refundable child credit for children under 17 years of age is restricted after 2017.
  9. The higher American opportunity education credit expires after 2017. We go back to the lower credits previously in effect.
  10. The Earned Income Credit of 45% for three or more children drops after 2017 to its prior level of 30%.

At least Congress has time to take care of these before we get too far after the expiration dates. When Congress does not do its job timely, taxpayers are left wondering what they can and cannot do. For example, the Research and Experimentation (R&E and also known as R&D) credit expired at the end of last year. Do business operate as though Congress will renew it retroactively, as Congress has done in the past? Alternatively, businesses might spend less on R&E since they do not know if they will get some of the cost back in a tax credit.

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Expired tax provisions, will they return?

Courtesy of www.TaxRebate.org.uk, license under CC.

The Joint Committee on Taxation lists 55, yes 55, tax provisions that expired December 31, 2013.  Their report (PDF) also includes a list of tax provisions expiring in 2014 and future years.  Will Congress renew them all, some of them or none of them? My comments are in italics. Selected expiring provisions:

  1. Credit for certain nonbusiness energy property (Residential energy credit – e.g. for a qualifying central air and heat system.)
  2. Tax credit for research and experimentation expenses
  3. Employer wage credit for activated military reservists
  4. Work opportunity tax credit (Did the unemployed all disappear?)
  5. Deduction for certain expenses of elementary and secondary school teachers (Perhaps having the schools pay for classroom supplies would be a better choice.)
  6. Discharge of indebtedness on principal residence excluded from gross income of individuals
  7. Deduction for qualified tuition and related expenses
  8. Additional first-year depreciation for 50 percent of basis of qualified property (Failing to renew this one will raise a lot of employers’ income taxes.)
  9. Premiums for mortgage insurance deductible as interest that is qualified residence interest (An income tested deduction many did not receive. Some people argue this deduction encourages people to buy more house than they can afford, others say the exact opposite – it allows people to buy a house who would not otherwise qualify.)
  10. Deduction for State and local general sales taxes (Shouldn’t this have applied to everyone? Not just to those in a state without an income tax.)
  11. 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
  12. Increase in expensing to $500,000/$2,000,000 and expansion of
    definition of section 179 property (Another one that will cost employers’ a lot of income tax if not renewed.)
  13. Tax-free distributions from individual retirement plans for charitable purposes

Did we ever need these?

  1. Credit for certain expenditures for maintaining railroad tracks (Railroads will not maintain their tracks unless the taxpayers help? Maybe there should be a credit for getting the oil changed in my car.)
  2. Credit for energy efficient appliances (manufacturer got this credit)
  3. Mine rescue team training credit (Really? Shouldn’t this be a requirement?)
  4. Election to expense advanced mine safety equipment (Apparently, the miners have a great lobby. Safety should be part of their mission, not something taxpayers should have to pay them to do.)
  5. Three-year depreciation for race horses two years old or younger (Wonder how many “jobs” this created?)
  6. Seven-year recovery period for motorsports entertainment complexes (Really? NASCAR needs special tax breaks when it is already the largest sport in the U.S.?)
  7. Placed-in-service date for partial expensing of certain refinery property (Subsidies for refiners?)
  8. Special expensing rules for certain film and television productions (I guess producers and movie stars are not paid enough.)

Here are the rest:

  1. Credit for health insurance costs of eligible individuals (Credit mainly for people who lost their job due to a “trade adjustment” – job shipped offshore – or whose employer went bankrupt and the government has taken over the former employer’s pension obligations.)
  2. Alternative fuel vehicle refueling property (non-hydrogen refueling property)
  3. Credit for two- or three-wheeled plug-in electric vehicles
  4. Second generation biofuel producer credit (formerly cellulosic biofuel producer credit)
  5. Incentives for biodiesel and renewable diesel
  6. Determination of low-income housing credit rate for credit allocations with respect to non-federally subsidized buildings
  7. Beginning-of-construction date for renewable power facilities eligible to claim the electricity production credit or investment credit in lieu of the production credit
  8. Treatment of military basic housing allowances for low-income housing credit and for qualified residential rental project exempt facility bonds
  9. Credit for production of Indian coal
  10. Indian employment tax credit
  11. New markets tax credit
  12. Credit for construction of new energy efficient homes (Builder got credit.)
  13. Qualified zone academy bonds: allocation of bond limitation
  14. Parity for exclusion from income for employer-provided mass transit and parking benefits
  15. Accelerated depreciation for business property on an Indian reservation
  16. Election to accelerate AMT credits in lieu of additional first-year depreciation
  17. Special depreciation allowance for second generation biofuel plant property
  18. Special rules for contributions of capital gain real property made for conservation
    purposes
  19. Enhanced charitable deduction for contributions of food inventory
  20. Energy efficient commercial buildings deduction (This was small in comparison to the additional cost. I doubt it really incentivized many people to build energy efficient buildings but I am sure those that did liked the credit.)
  21. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico
  22. Special rule for sales or dispositions to implement Federal Energy Regulatory Commission (“FERC”) or State electric restructuring policy
  23. Modification of tax treatment of certain payments to controlling exempt
    organizations
  24. Treatment of certain dividends of regulated investment companies (“RICs”)
  25. RIC qualified investment entity treatment under the Foreign Investment in Real Property Tax Act (“FIRPTA”)
  26. Exceptions under subpart F for active financing income
  27. Look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules
  28. 100-percent exclusion for qualified small business stock
  29. Basis adjustment to stock of S corporations making charitable contributions of  property
  30. Reduction in S corporation recognition period for built-in gains tax
  31. Empowerment zone tax incentives
  32. Incentives for alternative fuel and alternative fuel mixtures (other than liquefied hydrogen)
  33. Temporary increase in limit on cover over of rum excise tax revenues (from $10.50 to $13.25 per proof gallon) to Puerto Rico and the Virgin Islands
  34. American Samoa economic development credit