Imagine you’re an IRS employee trying to figure out how to operate efficiently, or you’re a tax preparer trying to stay on top of changing laws, or most importantly, you’re a taxpayer trying to make sense of the tax code in order to make sound financial decisions. Good luck. The answer? We need tax code simplification and clarity– something government rarely achieves. From a report submitted by the National Taxpayer Advocate:
Impact of Changes in Tax Law on Taxpayers and the IRS. “The continual enactment of significant tax law and extender provisions late in the year has led to IRS delays in handling millions of taxpayers’ returns and caused many taxpayers to underclaim benefits because they did not know what the law was,” Olson wrote. “Because of the magnitude of these challenges and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk. The 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.”
Expired Tax Provisions. Among tax provisions that expired at the end of 2011 are the following:
- The so-called “AMT patch.” As result, an estimated 27 million more taxpayers are subject to the Alternative Minimum Tax this year.
- The deduction for state and local sales taxes. About 11 million taxpayers claimed this deduction last year.
- The deduction for mortgage insurance premiums. About four million taxpayers recently claimed this deduction.
- A provision allowing persons over age 70-1/2 to make tax-free withdrawals from their Individual Retirement Accounts (IRAs) to make charitable contributions.
Congress is likely to extend many of these and other expired provisions retroactive to January 1, 2012, but neither taxpayers nor the IRS know for certain what will happen and therefore cannot make plans. For example, a homebuyer trying to decide whether to utilize a loan package that includes mortgage insurance now lacks important information. So does a pensioner trying to decide whether to tap his IRA to make a charitable donation.
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