Obama passes law with significant impact on 2014 taxes

Obama recently signed into law the Tax Increase Prevention Act of 2014, extending certain tax provisions that will benefit both businesses and individuals.

55 tax provisions expired on January 1, 2014. These provisions impacted everything from educator expenses to homeowner expenses for individuals, from credits for increasing research activities to work opportunities for businesses. These provisions were extended by the Tax Increase Prevention Act of 2014, signed by President Obama on December 19, 2014.

Think Advisor, an online resource for financial advisors that provides investment news with in-depth analysis, notes the passage comes with flaws that could lead to future tax controversies. Arguably the largest flaw is the fact that the law is only an extension, not a permanent tax provision. The law is set to impact taxes for the 2014 filing year, only to expire again.

The temporary nature of these extensions may be most problematic for businesses. One example of the types of tax breaks that help businesses includes a tax credit for increasing research activities. Businesses may hesitate to invest in long-term research activities without the certainty that the credit will remain for 2015 and beyond.

More on the Tax Increase Prevention Act of 2014

Notable provisions include:

  • Individual taxes - deduction of expenses for elementary and secondary school teachers: Individuals do not need to itemize their deductions to claim this above-the-line tax deduction. Educators are allowed to deduct up to $250 for purchasing supplies, books and other items used within the classroom that were purchased from their own income (not reimbursed).
  • Individual taxes - tax deduction of mortgage insurance premiums: Homeowners unable to put down 20 percent for the purchase of a home are generally required to purchase private mortgage insurance, or PMI. This extender allows homeowners to deduct these payments.
  • Individual taxes - tuition and fees deduction: Another above-the-line deduction that does not require itemization. This deduction covers up to $4,000 for tuition and related expenses such as books, supplies and equipment.
  • Business taxes - tax credit for increasing research activities: Generally, businesses can receive a credit that is incremental to the sum of 20 percent of the excess of the businesses' qualified research expenses. These expenses can include wages and the cost of supplies.
  • Business taxes - tax credit for producing electricity using wind, biomass, geothermal, landfill gas, trash, hydropower and marine and hydrokinetic renewable energy facilities: This credit allows businesses, like large electric providers, to receive a credit for putting up and using windmills and other "green" sources of energy.

It is important to note that these are only a few of the many provisions extended, and that these provisions are only extended through December 31, 2014. The future fate of these provisions for the 2015 tax year remains unclear.

Importance of legal counsel

This is just one of the many examples of the complex and evolving nature of tax law. Businesses or individuals that face a federal or state tax problem are wise to seek the counsel of an experienced tax lawyer. This legal professional can guide you through the most current tax laws and work to better ensure a more favorable outcome.

Keywords: tax law