Taxes and weather: Always changing

Remember the old adage that says if you don’t like our weather, wait a little while because it will probably change? In recent years, it seems like the old saying could be applied to taxes. Like the weather, changes in taxes are not always good. Sometimes, like this year, we have to wait a long time to find out what changes will occur.

In December, Congress finally did act to extend a number of tax codes that will continue to be of benefit to many people. The 10% tax bracket and the expanded 15% bracket will continue as will the equalization of the standard deduction to eliminate the marriage penalty. The child tax credit, the enhanced earn income credit, the teacher deduction, the add-ons to the standard deduction such as real estate taxes on personal residence was also extended for two years.

However, because congress delayed enacting the so called "extenders," the IRS announced that some taxpayers will not be able to file until mid to late February. The IRS indicated there will be an announcement as soon as the forms involved are ready.

The "making work pay" credit bill included 2009 and 2010. Much of the energy credit was extended through 2011. Several business related provisions were also extended, including bonus depreciation, increased expense election. The attractive dividends and capital gains tax treatment was approved and included in the legislation.

The new tax bill, named Tax Relief, Unemployment Insurance Re-authorization and Job Creation Act of 2010, also extended several education deductions and credits, provided a new year "AMT Patch" that will set the exemption to reduce the number of taxpayers effected by the alternative minimum tax. Several estate tax and gift taxes issues were also addressed in the bill.

The new bill also announced unemployment benefits extension and a one-year reduction in the employee’s portion of Social Security. The employee portion withheld on earnings will be 4.2% instead of 6.2%. The employer’s 6.2% remains the same. Also, the employee’s contribution will still be considered 6.2%.

Of course Congress did not wait until the end of the year to introduce all of the tax law changes. New tax legislation was passed earlier in the year. Remember the health care bill? "Patient Protection and Affordable Care Act" was enacted on March 23, 2010, and modified by the "Health Care and Education Reconciliation Act" passed March 30, 2010. The 2010 health care legislation is very complex and far-reaching. Various portions will "kick-in" from time to time over many years. In the early years there will be some benefits introduced. However, in the later years, some of the attributes will not be as attractive.

While Congress and the IRS continue to make and introduce changes in the tax code, Roger and Nedra of Eichlers Tax Service continue to attend many tax schools, seminars and conferences. This year’s list included the University of Missouri and Kansas Farm and Business Tax Schools, the IRS Nationwide Tax Forum in Las Vegas, several update seminars and in-depth courses including business and corporate taxes.

The IRS is introducing changes in addition to the tax law revisions. There is a new mandate requiring electronic filing of most all tax returns. In addition tax preparers are now required to be registered and assigned a PTIN number (Preparer Tax Identification Number.) The IRS has also announced that all preparers will be subject to testing and continued education requirements.

Earlier this year, the IRS announced its effort to curtail some of the bank products that were marketed to speed up refunds. The Refund Anticipation Loan, known as "RALs" and considered the most popular of the bank products, often provided refunds in a day or two. The banks that provided this service were actually making a short term loan to the taxpayer. The banks made loan decisions based on a report published by the IRS. The Debt Indicator Report was discontinued. Many of the banks that provided this service feel the risk is too great without the debt indicator report. Some of the banks will be offering an alternative product this year, referred to as a "refund transfer." However, the RT will not provide the refunds as quickly as the RALs.

Like most of us, you have probably come to expect tax law changes every year. However, 2010 has proven to be not only the year of many changes, but also the year to await the changes.