Congress poised to pass tax-extender extender, extending advisers' frustration

House is expected to vote Wednesday on legislation that would extend retroactively for one year an assortment of individual and business tax breaks

Dec 2, 2014 @ 2:13 pm

By Mark Schoeff Jr.

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Congress appears poised to do the minimum in renewing dozen of tax breaks that expired at the beginning of the year, a move that will extend investment advisers' frustration.

The House is expected to vote Wednesday on legislation that would extend retroactively for one year an assortment of individual and business tax breaks. The bill would ensure taxpayers can benefit from the breaks in 2014 but would not renew them for 2015.

Joe Pitzl, managing partner at Pitzl Financial, said it is “annoying” to be hamstrung in helping clients with tax planning when he's not sure what lawmakers will do on tax policy.

“It turns it into a guessing game — or a hoping game — rather than a planning game,” Mr. Pitzl said.

Tim Steffen, director of financial planning at R.W. Baird & Co., said a one-year extension is better than letting the tax breaks expire, but it doesn't lend much certainty to tax planning.

“It puts us right back in the same boat we've been in all year in another month,” Mr. Steffen said.

The House bill would renew most of the 55 so-called tax extenders for 2014. House and Senate negotiators were working on a larger package that would renew some extenders for two years and make others permanent.

That proposal was scuttled when the White House threatened a veto last week.

In the aftermath of that move, House Republicans are saying they won't consider a two-year extension, according to an aide to a member of the House Ways and Means Committee.

It's unclear what the Senate will do.

“We've gone from being on the cusp of a deal — a deal that both sides could reasonably support — to a situation where probably our only recourse will be to pass a one-year retroactive extension of all tax extenders,” Sen. Orrin Hatch, R-Utah, ranking member of the Senate Finance Committee, said in a speech Tuesday.

Last month, IRS Commissioner John Koskinen warned Congress that the longer they delay approving the extenders, the more likely the tax-filing season will be delayed.

The tax extenders package expired in January for the 2014 tax year and beyond. They include a tax deduction for charitable contributions directly from an individual retirement account as well as deductions for mortgage interest premiums, state and local sales taxes, and some higher education expenses. Business tax breaks for research and development and other activities also are included.

If Congress approves tax extenders by the target date next week for adjournment of the lame-duck session, there's still enough time for clients to take the tax deduction when they donate required minimum distributions from their IRAs to a charitable organization, Mr. Steffen said. But the clock is ticking.

“Advisers are going to have to be on top of this as well, reminding their clients who haven't taken their RMDs to make sure they get their distributions made by the end of the year,” Mr. Steffen said.

Advisers said some clients are in a holding pattern on their RMDs, waiting for Congress to make a decision. Other clients have taken them and made donations, either hoping Congress will come through with the extension of the tax-free distribution or electing to pay taxes on the IRA withdrawal and then claiming a standard charitable deduction.

Though Suzanne Shier, chief wealth planner and tax strategist at Northern Trust, said a one-year extension would address immediate needs for tax planning, it's not optimal.

“It's just unsettling for people who are trying to be mindful about their charitable giving not to have clarity at this time of year,” she said.

The uncertainty also is stymying Mr. Pitzl's small-business clients. They're wrestling with expansion decisions without knowing the tax consequences, he said.

“It's difficult to do budgeting when you're not certain what the [tax] impact will be,” Mr. Pitzl said. “The money they could reinvest in their business is greater the longer the [tax] breaks are extended.”

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