With all the talk and activity in Washington these days, taxpayers are left wondering what—if anything—will affect the 2024 returns they may be filing shortly. Are there strategies to consider based on current discussions on the Hill? With March 17 and April 15 quickly approaching, here are some topics taxpayers may be hearing about, and whether there may be actions to take.
Retroactivity: Could new policy affect last year’s returns?
While there is no way to answer this for sure, one of—if not the largest—hurdle lawmakers face with tax policy this year is its cost. As outlined in our From the Hill publications, budget negotiations have included pressure for spending cuts and funding sources for possible future legislation. In addition, there is pressure from certain Congress members to not only extend but make permanent the Tax Cuts and Jobs Act (TCJA) provisions, adding to the overall price tag. All of this would likely preclude any retroactive tax policy from passage. Said another way, it may be too expensive to allow for tax changes to apply to prior years.
All of this being said, extensions to file returns for businesses and individuals are available. Taxpayers may choose to file an extension—rather than their returns—to see how things shake out in D.C. Further, filing an extension would make a superseding return possible. To file a superseding return, a taxpayer must generally file an extension, then an original return, and then a return prior to the extended due date if an additional benefit is made available. To explore more about whether filing an extension is the right answer for you, connect with one of our professionals at Forvis Mazars today.
SALT Cap: Should possible changes influence my elections this year?
Pass-through entity tax (PTET) elections have been the states’ answer to the current $10,000 state and local tax (SALT) cap. However, states have approached their PTET regimes differently. Some have written that they expire in tandem with the federal SALT cap, while others have not. Further, it is possible that Congress or the IRS shuts down PTET deductibility starting in 2025 and 2026.
There is no simple answer as to whether taxpayers should make the PTET election by the upcoming due date. Making a 2025 PTET election will continue to make sense for most people even if the deductibility is eliminated for 2025, but each situation is different and should be analyzed.
For more on this decision and the complicating factors listed above, keep an eye out for our forthcoming FORsights™ article.
Disaster Losses
The Section 165(i) Election
Although not part of the political fray, disaster losses have been an unfortunate and very real part of many Americans’ lives this tax season. Subject to some specifics, these taxpayers may consider making the §165(i) election. This election allows for “any loss occurring in a disaster area and attributable to a federally declared disaster may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred.” Therefore, as an example, those impacted by the California fires in 2025 may explore this option on their 2024 returns for some much-needed relief.
Related Bills Proposed
Two bills—Disaster Related Extension of Deadlines Act (H.R. 1491) and the Filing Relief for Natural Disasters Act (H.R. 517)—have been introduced to help those affected by natural disasters. The former would allow for taxpayers to align their three-year look-back period for claiming refunds or credits with an extended filing period due to disaster relief per Code §7508A. Further, the bill would require IRS notices to take into account an extended due date when calculating interest and penalties. The latter would offer the U.S. Department of the Treasury the flexibility to extend deadlines after a state-declared disaster, which often comes prior to a federally declared disaster. Both bills passed the House Ways and Means Committee with bipartisan support.
ERC: What impact does the current ERC claim backlog have on my action items this tax season?
Even though the Employee Retention Credit (ERC) was a COVID-era credit, many taxpayers are still waiting on their related cash refunds. The IRS has a well-publicized backlog of ERC claims, even with the moratorium on processing lifted. However, taxpayers should amend their returns to adjust wage expenses when an ERC claim is filed, not when a refund is received. Therefore, it is possible that taxpayers will be paying income tax due to an amendment prior to receiving the offsetting cash flow. Unfortunately, that burden does not relieve taxpayers from the requirement to amend their 2021 filings before the statute closes. Not amending also could preclude taxpayers from receiving a refund at all, given the IRS has been asking for evidence of these adjustments in examinations. For more on this topic, along with a discussion on whether filing protective refund claims would be warranted, take a look at our recently published alert on the topic.
IRA: As a publicized option for spending cuts, what would a change to the IRA mean for my clean energy investments or credit claims?
Historically, it has been rare for a change in policy to retroactively harm taxpayers. Therefore, regardless of what will happen with the Inflation Reduction Act (IRA) provisions, a credit claimed for the 2024 tax return season will most likely be untouched. The same goes for “bonus credit” amounts for these clean energy credits. That being said, there are still a few things to consider:
- Investment tax credits are claimed in the year the property is placed in service while production credits are claimed over time as the property produced energy. Although extremely unlikely, it is technically possible that a legislative change may interfere with a taxpayer’s ability to continue to claim a production credit for property placed in service previously. If taxpayers are nervous about the future of clean energy credits, they may decide to opt for investment credits instead of production credits.
- It has been floated that IRA provisions could be a target for IRS audit scrutiny. However, with the current wave of IRS personnel cuts, this potential for increased focus may prove less intense. Of course, regardless of the rate of examinations, credit claims should always be properly filed in accordance with available guidance.
- The IRA includes many clean energy initiatives, ranging from credits to grants for everything from solar and wind to electric vehicles. Many have speculated that rather than “core” credits (like those for solar and wind) being repealed, related grants and credits for electric vehicles may be the lowest hanging fruit for appeal come negotiations this year.
How Forvis Mazars Can Help
Largely, current policy discussions should not affect 2024 filings. However, it may be wise to include the above topics in discussions with your professional at Forvis Mazars before finalizing your returns this year. If you have any questions or need assistance, please reach out to one of our professionals.