Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Our Herky-Jerky Retroactive Tax Changes

Posted by taxguru on December 23, 2014

As many people had predicted, our imperial rulers in DC have finally passed an extension of many of the deductions that had expired as of December 31, 2013.  This extension is retroactive to January 1, 2014 and expires on December 31, 2014. 

To show what a bunch of morons we have ruling us from their thrones in DC, they could have very easily helped us avoid this kind of uncertainty next year by making those deductions permanent or at least adding another year to their effective time, such as expiring on December 31, 2015.  But they had to continue their reign of incompetence and force us to go through another year wondering whether or not these things will be deductible.

Here are links to some good summaries of the items included in the tax extender bill.

CNN Money

Tax Foundation

The TaxBook (5 page PDF)

Spidell

Congress.gov

 

Section 179

The one item that I am most interested in is the Section 179 first year expensing election for newly acquired business equipment.  After four years with a maximum sec. 179 deduction of $500,000 per tax return, it dropped down to just $25,000 as of January 1, 2014.  Now, with this newly passed extenders bill, it goes back up to $500,000 for all of 2014 and then drops down to $25,000 as of January 1, 2015.

While this is a great thing for businesses that want to take this deduction, it illustrates how difficult it is to run a business and make plans for any time in the future.  Most well run businesses do make multi-year plans for their capital expenditures, such as the purchase of new equipment.  The amount of the allowable Section 179 deduction is a key factor in that kind of decision making.  Not knowing from year to year if the maximum deduction will be $25,000 or $500,000 is a very large item of uncertainty that makes any realistic planning extremely difficult. 

It’s been obvious that certain factions in our governing elite in DC love making businesses deal with this kind of uncertainty because it would be so easy to remove or at least reduce that.  They could make the $500,000 a permanent part of the law or at least keep it the same for five or ten years at a  time.  They want to keep it an annual guessing game because it gives them more power over businesses and extorts more campaign contributions (formerly known as bribes) from their owners.  

 

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