It is time again for the lively advertisements encouraging taxpayers to get their billions back. Meanwhile, IRS computer programmers and software venders scramble to rewrite their e-file systems to accept the last minute tax changes passed on December 19 under the Tax Increase Prevention Act of 2014. Fortunately, the tax changes brought back a long list of tax deductions, credits and breaks that were originally expected to expire at the end of 2013. Here are some of the more relevant ones for individuals, business owners and real estate investors:
- Sales tax deduction revived
- Tax deductions for mortgage insurance premiums
- Exclusion from gross income of discharge of qualified principal residence indebtedness
- Tax deduction for qualified tuition and related expenses
- Work opportunity tax credit
- Research and Development credit
- 50 percent bonus depreciation for new assets purchases
- Section 179 depreciation was increased from $25K to $500K for assets used for businesses
- Residential energy efficient improvement tax credits
- Tax credit for energy efficient new homes and tax deduction for energy efficient commercial buildings
Unfortunately, these one-year tax extensions may have arrived too late for many taxpayers to take advantage of them. It is also uncertain whether these changes will cause a repeat of the problems created two short years ago when Congress passed last minute tax-law changes to 2012’s tax rules. These changes are also only good through 2015, leaving taxpayers and professionals in the dark for what rules should be followed for 2015 tax planning.
In early 2013, Congress wreaked technological havoc on the IRS and tax professionals when it passed the the American Taxpayer Relief Act of 2012 on January 1, 2013. This legislation contained 157 pages of tax code changes, many of which were retroactive and altered the tax rules for 2012. Unfortunately, Congress made these changes just days before taxpayers were starting to file their 2012 tax returns. As with the Tax Increase Prevention Act of 2014, these changes were made after the IRS and the entire tax-processing industry had programmed their systems to process income tax returns following rules that were already in place.
I do have some good news: this year the IRS has completed their software updates and started accepting e-filed tax returns on January 20 – 11 days sooner than last tax season. Generally the IRS will issue tax refunds within three weeks of being e-filed, and it could be even sooner if you elect to have the funds directly deposited into your bank account.
IRS commissioner John Koskinen warns that the recent IRS budget cut of $346 million could delay paper filed returns by more than a week. This is the fifth consecutive year congress has cut the IRS budget. These budget cuts also are estimated to increase taxpayer wait times for phone calls, reduce the number of audits and reduce the number of IRS agents working identity theft prevention [see article on Page 5]. The Internal Revenue Service will lose 1,800 tax collectors through attrition and do 46,000 fewer audits this year because of congressional budget cuts to the tax agency, IRS Commissioner John Koskinen told IRS employees this month.
While experiencing budget cuts, the IRS continues to increase its efforts against refund fraud, which includes identity theft. As a result of these aggressive efforts to combat identity theft from 2011 through November 2013, the IRS has stopped 14.6 million suspicious returns, and protected more than $50 billion in fraudulent refunds.
For 2014, the IRS will continue to increase both the number and efficiency of the identity theft filters that are used to identify potentially fraudulent returns due to identity theft prior to the processing of the return and release of any refund.
In Fiscal Year 2013, the IRS initiated 1,492 identity theft related criminal investigations, an increase of 66 percent over investigations initiated in FY 2012. Indictments and sentencing doubled in FY 2013 and the average prison term was more than three years (38 months) – the longest sentence being 26 years.
I encourage clients to file their tax returns as soon as possible before any false tax returns are filed by criminals attempting to use your identity.
Aaron Dawson is a shareholder and president of Opsahl Dawson, a CPA firm with locations in Longview and Vancouver. He can be reached at firstname.lastname@example.org .