New taxes for 2014: What youshould know
A look at some potential new taxes in 2014 that you mighthave to pay if Congress doesn't take action in the next few weeks.
Story Highlights
- Expiring provisions could add new taxes in 2014
- Credits for biodiesel production are slated to expire next year
- Tuition deductions for higher education, and itemized deductions for sales taxes could vanish.
Expiringprovisions could add new taxes in 2014
The biggest challenge that taxpayers face is predictingwhether lawmakers will extend expiring tax breaks. Every year, lawmakers seemto go down to the wire with key tax-extender legislation, and it's nevercertain whether certain popular provisions will get the go-ahead to remain ineffect for the following year. If these provisions expire, they'll create newtaxes in 2014 for individual and business taxpayers to pay.
Forindividuals, new taxes could come from a variety of sources:
For years, homeowners who've had part of their mortgage debtforgiven 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) , JPMorganChase (JPM ) and other banks have continued to modify loans as part ofsettlements with regulators and state attorneys general, producing debt forgivenessincome. 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 provisionequalizing the amount they're entitled to receive tax-free from their employersto subsidize their commuting expenses expires. Without an extension, the amountcould drop from an expected $250 per month to $130 per month. Those who driveto work and use parking will continue to get the higher amount, raising debateabout 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 salestaxes.
Meanwhile, for businesses, the potential losses could beeven bigger. The most substantial new taxes in 2014 for businesses would comefrom the expiration of the 50% bonus depreciation provision, which allowed halfof the cost of purchases to be deducted from current-year income rather thanhaving to be spread out over the usable lifetime of the purchase. A provisionaimed at small businesses that allows them to elect to deduct all of the costof certain types of property has gotten more attention on political grounds.But bonus depreciation affects businesses of all size, and many credit theprovision for helping General Electric (NYSE: GE ) and other big corporationsgreatly reduce their tax bills in recent years.
Some provisions affect specific industries. Credits forbiodiesel production are slated to expire, as are benefits for railroad-trackmaintenance, motorsports complexes, and racehorse owners. These narrowlydefined provisions are often relatively small in dollar terms, but they canhave a big impact on those who are in the businesses that they affect.
What'snext?
As of mid-December, lawmakers hadn't taken much action topush these provisions forward. That doesn't mean it won't happen, though, asmany individuals and businesses rely on the provisions. In particular, targetedbusiness 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 getthem extended. Nevertheless, given the lack of attention the situation hasgotten so far, it's entirely possible that expiring provisions will in factresults in new taxes for 2014 and beyond.
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