Taxpayers are getting ready for new tax changes, which could occur in 2014. In 2013 taxpayers faced huge changes to tax laws that created several new taxes, requiring big adjustments in tax planning. Luckily 2014 we won’t see as much change, although there is still the possibility of a year-end flood of activity, introducing new costs for taxpayers. Below is a list of ‘potential’ new tax laws that might affect you if Congress doesn’t make changes in the upcoming weeks.
Expiring provisions could add new taxes in 2014
The biggest challenge that taxpayers face is predicting whether lawmakers will extend expiring tax breaks. Every year, lawmakers seem to go down to the wire with key tax-extender legislation, and it’s never certain whether certain popular provisions will get the go-ahead to remain in effect for the following year. If these provisions expire, they’ll create new taxes in 2014 for individual and business taxpayers to pay.
For individuals, new taxes could come from a variety of sources:
For years, homeowners who’ve had part of their mortgage debt forgiven haven’t had to treat the resulting debt reduction as taxable income. That could change for 2014, and it comes at a tough time for some homeowners. Bank of America (ticker: BAC) , JPMorgan Chase (JPM ) and other banks have continued to modify loans as part of settlements with regulators and state attorneys general, producing debt forgiveness income. Yet with the perception that the housing market has recovered, lawmakers might choose not to extend the provision.
Public-transit commuters could see a new tax if a provision equalizing the amount they’re entitled to receive tax-free from their employers to subsidize their commuting expenses expires. Without an extension, the amount could drop from an expected $250 per month to $130 per month. Those who drive to work and use parking will continue to get the higher amount, raising debate about tax policy.
The loss of other deductions and credits could boost taxes, including the energy-efficiency credits for certain home-related expenses, tuition deductions for higher education, and itemized deductions for sales taxes.
Meanwhile, for businesses, the potential losses could be even bigger. The most substantial new taxes in 2014 for businesses would come from the expiration of the 50% bonus depreciation provision, which allowed half of the cost of purchases to be deducted from current-year income rather than having to be spread out over the usable lifetime of the purchase. A provision aimed at small businesses that allows them to elect to deduct all of the cost of certain types of property has gotten more attention on political grounds. But bonus depreciation affects businesses of all size, and many credit the provision for helping General Electric (NYSE: GE ) and other big corporations greatly reduce their tax bills in recent years.
Some provisions affect specific industries. Credits for biodiesel production are slated to expire, as are benefits for railroad-track maintenance, motorsports complexes, and racehorse owners. These narrowly defined provisions are often relatively small in dollar terms, but they can have a big impact on those who are in the businesses that they affect.
As of mid-December, lawmakers hadn’t taken much action to push these provisions forward. That doesn’t mean it won’t happen, though, as many individuals and businesses rely on the provisions. In particular, targeted business tax breaks often make or break a certain industry’s business model, and players in those industries use all their political clout to try to get them extended. Nevertheless, given the lack of attention the situation has gotten so far, it’s entirely possible that expiring provisions will in fact results in new taxes for 2014 and beyond.
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Original article courtesy of USA Today.