Status of Federal Extender Tax Provisions that Expired at End of 2014

The federal extender tax provisions expired at the end of 2014. Although it appears that Congress will extend these provisions before the end of the year, it is still helpful to reiterate what these provisions are.

Below is a list of the most used of the expired tax provisions and how the Sec. 179 expense provisions would significantly change for Tax Year 2015 if they are extended.

Provisions that need to be extended by Congress to be applicable for Tax Year 2015:

• $250 Educator Expense Deduction – Form 1040, line 23
• Tuition and Fees Deduction – Form 8917
• Itemized Deduction for Sales Tax
• 50% Bonus Depreciation
• Exclusion of gain from income for foreclosed home mortgage debt (Form 982)
• 15 year straight line depreciation allowed for qualified leasehold restaurant and retail improvements
• Tax-free distributions from IRAs for charitable purposes
• Nonbusiness energy property tax credit  on Form 5695
• Contributions of capital gain real property made for conservation purposes (50% limitation applies instead of 30% limitation)
• Qualified Real Property category for Sec. 179 expensing purposes

Also, the following limits are in effect for Tax Year 2015 unless Congress extends the expired Section 179 expense provisions:

• Maximum Section 179 Deduction amount: $25,000
• Maximum Cost before Section 179: $200,000

Congress has begun discussions on extending these tax provisions. However, an actual bill will probably not be voted on until sometime this fall. With everything else that Congress needs to take care of this fall, it appears that a bill extending these tax provisions will not be passed until December 2015. Check back here later for more information on what occurs with these provisions and what impact the lateness in the passage of any legislation may have on the start of the 2016 filing season.

For a complete listing of all the expired tax provisions that affect both individuals and businesses, see Things to Know for Current Tax Year section (under Provisions Extended for 2014) of the Tax Resource Center on the CrossLink website.

Federal Tax Provisions Extended for One Year

On December 16, 2014, Congress finished passing legislation that extended, for one year, virtually all of the provisions that had expired at the end of 2013. The bill HR 5771 will become law once the President signs it.

Here is a list of some of the provisions that are now applicable for Tax Year 2014 returns:

• $250 Educator Expense Deduction – Form 1040, line 23
• Tuition and Fees Deduction – Form 8917
• Itemized Deduction for Sales Tax – Schedule A
• 50% Bonus Depreciation
• Exclusion of gain from income for foreclosed home mortgage debt (Form 982)
• Section 179 Deduction:
• Maximum Amount: $200,000
• Maximum Cost: $2,000,000
• Qualified Real property category which includes leasehold improvements, restaurant property and retail property with a maximum deduction of $250,000
• Qualified Real Property
• 15 year straight line depreciation allowed for qualified leasehold restaurant and retail improvements
• Tax-free distributions from IRAs for charitable purposes
• Nonbusiness energy property tax credit on Form 5695
• Contributions of capital gain real property made for conservation purposes (50% limitation applies instead of 30% limitation)

For a complete listing of the individual and business provisions that were extended for 2014 only, as well as changes related to the Affordable Care Act and other reminders, see the Things to Know for the Current Tax Year page on the Crosslink Tax website.

Additional Tax (Penalty) for Not Having Health Insurance for 2014

It is important that everyone understands what the penalty will be for not having health insurance for all or part of 2014.

If someone does not have health insurance for Tax Year 2014 the penalty is calculated as the greater of:

• 1% of their modified adjusted gross income that exceeds their personal exemption (doubled for those who file married filing jointly) plus the standard deduction for their filing status.
  Modified Adjusted Gross Income is defined as Adjusted Gross Income plus:
• Tax exempt interest
• Portion of social security income not included in income
• Foreign earned income and the housing cost of individuals who live abroad
This means the penalty will begin to be calculated once the modified adjusted gross income exceeds:
• $10,150 for single individuals
• $20,300 for married couples filing jointly
Or
• A flat dollar amount of $95 per adult family member age 18 and older, and $47.50 for each dependent under age 18. This amount is capped at $285 for Tax Year 2014.

One percent (1%) of income will begin to exceed the flat dollar amount when their modified adjusted gross income exceeds:

• $19,650 for Single individuals
• $39,300 for Married couples with no dependents
• $44,050 for Married couples with one dependent under age 18
• $48,800 for Married couples with two or more dependents under age 18

Put another way, Single individuals subject to a penalty will pay the flat dollar amount when their income is between $10,150 and $19,650. Once their income exceeds $19,650 they will pay 1% of their income.

Married couples subject to the penalty will pay the flat dollar amount when their income exceeds $20,300 and is below the income amounts above based on their family size. Once their income exceeds that amount they will pay 1% of their income.

If the taxpayer owes a penalty they must include it on their 2014 federal return.

Under the following circumstances, a taxpayer who does not have health insurance will not be subject to the penalty:

• Taxpayer does not have to file a federal income tax return because their income is below the filing threshold
• Taxpayer is uninsured for less than 3 months of the year
• The lowest cost health insurance coverage available to the taxpayer would cost more than 8% of their household income
• Taxpayer is in jail or prison
• Taxpayer is not lawfully present in the United States
• Taxpayer has a qualifying religious exemption
• Taxpayer is a member of one of the following:
• Federally recognized Indian tribe
• A recognized health care sharing ministry
• Taxpayer obtains a hardship exemption

For more information on when a taxpayer may qualify for a hardship exemption and how to apply for one, see How do I Qualify for an exemption from the fee for not having health coverage on the HealthCare.gov website.

IRS Earned Income Tax Credit Compliance Efforts for Upcoming Filing Season

In a continuing effort to improve Earned Income Tax Credit (EITC) preparer due diligence, the IRS will be performing the following educational and due diligence audit activities this fall and during the 2014 Filing Season.

The IRS continues to use a risk based scoring model to classify preparers of EITC returns. Based on this score, a preparer may be subject to one of the following:

• Warning Compliance Letter 
  The IRS will send approximately 11,000 letters regarding specific errors that they observed on 2012 returns to medium risk preparers prior to the filing season that will include the following:
  • Inform the preparer that they may have submitted inaccurate returns
  • State the primary EITC issues the IRS observed
  • Explain the consequences to the taxpayer and preparer for filing inaccurate EITC returns
  • List what their due diligence requirements are
These letters are designed to help the preparers file more accurate EITC returns in the future. The IRS will be monitoring these preparers as the 2014 Filing Season begins and may do a follow-up with these preparers if they do not see improvement. This action may be a phone call, additional warning letter, or due diligence audit.
See Reaching Out To Preparers on the IRS EITC Central website for more information and to see examples of the letters.
• Educational Visit
  
  This fall, an IRS agent and criminal investigator will conduct educational visits to preparers whom the IRS believes have filed EITC claims with a high chance of error. The goal of these visits is to help preparers understand what the errors were and how to avoid them. They will also discuss the consequences of filing inaccurate returns and what their due diligence requirements are.
  No penalties are assessed during these visits; however, the IRS will be closely monitoring EITC returns filed by these preparers during the 2014 Filing Season. If the IRS does not see improvement the IRS will conduct a due diligence audit during the filing season.
  See Visiting Preparers Filing Highly Questionable Returns on the IRS EITC Central website for what occurs during these visits.
• Due Diligence Audits
  
  The IRS will again be conducting around 1,000 due diligence audits with 700 standard audits performed during the fall of 2013 based on 2012 EITC returns, and 300 real-time audits will be performed during the filing season based on 2013 EITC returns.
  The IRS conducts a due diligence audit on preparers whom they consider to be filing a large number of highly questionable EITC claims.
  See Auditing for Due Diligence Compliance on the IRS EITC Central website for more information on what occurs during a EITC due diligence audit.
  Since a Real-Time Due Diligence audit has some differences from the standard due diligence audit, see the Real Time EITC Preparer Pilot page on EITC Central website for what these differences are.

To learn more about the IRS EITC compliance program see the following on the IRS EITC website:

• EITC Preparer Compliance — Targeted, Tailored and Tiered
• EITC Preparer Due Diligence

Affordable Care Act Update - Employer Reporting and Penalty Provisions Delayed for One Year

The employer penalty and reporting provisions under the Affordable Care Act have been postponed for one year until 2015. The Administration explained that this delay was necessary in order to simplify the reporting requirements and to give employers more time to adapt their reporting systems and become familiar with the affordability and minimum value standards for the health insurance plans they offer their employees.

This means that for 2014, employers with 50 or more full-time employees will not be subject to a penalty if they do not offer health insurance to their employees, or if they do offer insurance and they fail to meet the affordability and minimum value standards.

Also for 2014, the employer reporting requirements relating to the health insurance an employer offers their employees will be voluntary. The employer reporting requirements will be required beginning in 2015.

It is important to note that this postponement of the employer penalty and reporting provisions does not affect the requirement that all individuals must obtain health insurance for themselves and their family beginning in 2014.

For more information, see the following:

• IRS Notice 2013-45 - Transition Relief for 2014 Under Sec 6055 and 6056 (Information Reporting) and Sec 4980H (Employer Shared Responsibility Provisions)
• July 2nd U.S. Department of Treasury Notes (Continuing to Implement ACA in a Careful, Thoughtful Manner)
• January 2nd White House Blog (We're Listening to Businesses About the Health Care Law)