Every year the scenario is the same – taxpayers, as individuals or in pairs, will gather their tax information and prepare their taxes for the prior year. They may prepare the taxes themselves or they may hire a professional to prepare them. Either way, tax returns are required.
The well-prepared taxpayers will have all the necessary documents in one place already. The REALLY well-prepared taxpayers will have done some tax planning. Tax planning consists of taking advantage of your individual circumstances to get the best tax benefits. After all, everybody is striving to pay the least amount of tax they are legally obligated to pay. There are certain tax breaks that can be used to lower an individual’s tax liability. The problem is that there is no guarantee that those breaks will be around in any given year.
Why is that?
Dozens of individual and business tax breaks that have been around since 1998 are temporary and at least theoretically intended to expire. They have expired and been extended retroactively seven times. (Hence, the term “tax extenders.”)
Some of the more popular breaks that are on the chopping block on a yearly basis are:
A deduction for classroom expenses for teachers
A deduction for tuition and fees expenses
The option to include state and local sales taxes as itemized deductions
Mortgage debt relief (so that mortgage debt that is forgiven is not considered taxable income)
Mortgage insurance premiums deduction on itemized deductions
Various charitable donation benefits on itemized deductions
Various energy efficient home improvements
Because Congress is now in the habit of waiting until the end of the year after which they have expired to decide whether to extend these provisions, many people and businesses cannot plan. Aside from the obvious inability to tax plan, the IRS itself is affected. How can IRS plan for tax season when they don’t know what they need? How can the IRS make forms when they don’t know what needs to be on them? How can tax software providers everywhere write their tax programs when there are no forms to write the program for? I’m sure everyone will remember a couple years ago when they were unable to file taxes until mid-February if you had itemized deductions or went to college. That is because the tax law was not approved by Congress until after Jan. 1 and the IRS and software providers couldn’t get prepared until after the law was passed.
You may be wondering what you, the taxpayer, can do about it. Instead of getting angry with your tax professional, get angry at Congress. Write to your Congressional representatives in both the House of Representatives and the Senate. Congress doesn’t know that an issue is important to you unless you tell them. Let them know that retroactively extending popular tax provisions is unacceptable. Taxpayers shouldn’t have to guess what affect a business purchase will have on their bottom line. Individuals shouldn’t have to guess whether their withholding will cover their personal tax liabilities. Tax and financial planning is vital, and congressionally created instability is detrimental to that planning. QCBN
By Roxanne Augenstein
Northern AZ Financial Services, 928-526-3999