December can be something of a bittersweet month for many Americans because it's a time when people celebrate the holidays with their friends and family, but it's also a month where nearly all last-minute tax maneuvers are completed. Let's face it, no one really enjoys doing their taxes, and often the last thing we want to think about in December is preparing to start our taxes in the coming weeks.
Yet, tax time is also critical both for our nation's poor savers as well as businesses. Tax refunds are a good way of forcing those who have a propensity to spend all of their income to save money and potentially invest it toward their future. Refunds also serve the purpose of invigorating the economy through consumer purchases. Cost-conscious retailers like Wal-Mart and Target, for example, rely on tax refunds to drive consumer traffic in the first-half of each year.
Tax changes take center stage
Of course, taxpayers also have to be able to adjust to what can be numerous tax code changes each and every year. Since 2001 Congress has made around 5,000 changes to the U.S. tax code. That might sound like a lot, but given that the tax code is the equivalent of 62 novels it tends to put things into perspective.
Most Americans are acutely unaware of most tax code changes because they now rely on in-home tax preparation software or a tax professional to handle their taxes. In other words, trying to keep up on every single change can be an unnecessary and unwelcome chore.
But, the potentially good news is that Congress wants to give you a pretty sizable tax break on your 2014 taxes (the return you'll file by April 15, 2015), but it'll come with a catch.
The big tax break Congress wants to give you
Just last week the U.S. House of Representatives announced by a vote of 378-46 that it had approved a bill with roughly 50 tax-extending provisions worth $41.6 billion that it was planning to send onto the Senate. The bill reinstates a number of key tax breaks that expired on Dec. 31, 2013 for both consumers and businesses.
Among the important personal tax breaks included in this bill (if it were to eventually be signed into law) are the state and local sales tax deduction, which is important in states with no income tax such as Nevada and Washington. Also, individuals who short-sold their homes and had their debt forgiven would be allowed to exclude that income from their 2014 tax filing. Students and teachers would also retain certain above-the-line deductions for tuition and classroom expenses.
The tax-extender bill would also provide a number of critical tax deductions for businesses as well. These breaks include a laundry list of energy tax credits for the use of wind, biofuel, and biodiesel energy, to name a few, in addition to incentives for hiring people from disadvantaged groups. In fact, 80% of the $41.6 billion tax-extender bill would go toward benefiting businesses.
Here's the caveat
For taxpayers who receive a substantial benefit from the sales tax deduction, and businesses like Wal-Mart that benefit from hiring disadvantaged workers, this is a money-saving bill. But it comes with a price.
Because Congress spent the past 11 months bickering over what to do with these tax break extensions, the House of Representatives' bill heads to the Senate with an expiration date of Dec. 31, 2014 -- that's less than three weeks from now. In short, Congress is looking to give taxpayers and businesses the same breaks they received in 2013, but it will leave businesses and consumers with no idea whether they can expect these breaks again in 2015.
Think about it like this: Businesses are getting tax breaks for switching to alternative energies and hiring disadvantaged workers, and their R&D costs are being heavily subsidized. But are businesses likely to make those investments in 2015 if there's no guarantee they'll be able to take advantage of these tax breaks next year? I certainly don't have the answer to that, but there's a real possibility that corporate spending in tax-advantaged areas could fall in 2015 because of Congress' inability to hash out a long-term deal.
For now, it looks as if you'll be able to take advantage of the same tax breaks you enjoyed last year -- but don't bank on seeing these same tax breaks extended beyond your 2014 tax filing just yet.