The new year could bring important changes to the tax
landscape. Here are several issues that will affect how much taxpayers owe for
2015 and beyond:
Federal tax policy
There is serious talk of overhauling the federal tax code. The
details matter when it comes to the individual income tax. Attempts to improve
the system, such as the plan from outgoing House Ways & Means Chairman Dave
Camp (R.-Mich.), often aim to simplify the code by applying lower tax rates to
a broader base of income, without affecting overall revenue.
If lawmakers want to go that route, they face hard choices.
Lowering rates means cutting or eliminating popular tax breaks, such as
deductions for mortgage interest and charitable donations, to offset lost
revenue. The tax breaks that cost the government the most often serve policy
goals. For example, breaks encourage retirement savings and support
employer-based health coverage.
Despite those hurdles, lawmakers have an incentive to strike
a deal in advance of the 2016 presidential election. Serious overhaul proposals
could emerge by late spring. Change, if it actually comes, would likely need to
happen by year-end or early in 2016.
The U.S. campaign against offshore tax evaders is expanding.
In late December, Bank Leumi Group became the first Israeli financial
institution to admit that it helped U.S. taxpayers hide money abroad. It agreed
to pay $400 million and to name more than 1,500 account holders.
Among other things, the bank helped customers evade U.S.
taxes by making loans using Bank Leumi’s U.S. affiliate, collateralized by
assets abroad, according to court filings. In effect, the clients could use
offshore accounts to obtain capital in the U.S. while keeping the accounts
secret from U.S. officials, according to the filings.
Bank Leumi also admitted sending private bankers to the U.S.
to meet secretly with clients at hotels, coffee shops and parks to discuss
Also last month, the Internal Revenue Service obtained a
court order seeking to identify U.S. taxpayers who it says may have evaded
taxes using a Panama-based firm, Sovereign Management & Legal Ltd. The
court order obtained by the IRS doesn’t seek information directly from
Sovereign Management & Legal, according to the U.S. Department of Justice.
Instead, the order authorizes the IRS to issue summonses to eight U.S. firms
that made deliveries or money transfers to or from Sovereign on behalf of U.S.
customers for records identifying those customers.
Since the campaign against secret offshore accounts began,
more than 45,000 taxpayers in an IRS limited-amnesty program have paid more
than $6.5 billion in taxes, interest and penalties.
Expatriate tax issues
The U.S. campaign against offshore tax evasion also has
raised difficult issues for 7.6 million ordinary American citizens living
Unlike most countries, the U.S. taxes nonresidents on
world-wide income. There are limited offsets for double taxation as well as
complex reporting requirements with severe potential penalties. For decades the
law generally wasn’t enforced, but it is now.
As a result, many Americans abroad are finding it virtually
impossible to have bank accounts, save for retirement, and make investments—all
the normal activities of financial life. A December report by the Republican
staff of the Senate Finance Committee calls for major change.
As of Jan. 1, a one-year extension of dozens of tax
provisions expired. If that sounds familiar, it’s because Congress didn’t renew
these provisions for 2014 until mid-December, giving taxpayers about two weeks
to use them.
The expired provisions include: the popular individual
retirement account charitable-transfer provision, a benefit that allows IRA
owners who are 70½ and older to donate IRA assets directly to charity; a
deduction for state and local sales taxes instead of income taxes; tax relief
for mortgage-debt forgiveness; and enhanced depreciation benefits for
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