How current debates in Washington could affect your 2024 tax filings

With so much happening in Washington these days, taxpayers may be left wondering what — if anything — will affect their 2024 tax returns.

Are there strategies to consider based on current discussions in Washington, D.C.? With March 17 and April 15 filing deadlines quickly approaching, here are three topics taxpayers may be hearing about, and some considerations about potential actions to take.

Could new policy affect last year’s returns?

One of the hurdles lawmakers face with tax policy this year — if not the largest — is its cost. Budget negotiations in Congress have included pressure for spending cuts and funding sources for possible future legislation.

In addition, there is pressure from certain members of Congress to not only extend but make permanent the Tax Cuts and Jobs Act (TCJA) provisions, adding to the overall cost of any potential legislation. All of this would likely preclude any retroactive tax policy from passage. Put another way, it may be too expensive to allow for tax changes to apply to prior years.

That 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.

Should possible changes influence my elections this year?

Pass-through entity tax (PTET) elections have been the states’ answer to the current $10,000 cap on state and local tax (SALT) deductions when filing federal income tax returns. However, states have approached their PTET regimes differently. Some have written that they expire in tandem with the federal SALT cap. 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 or should not 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 Illinois residents who own pass-through entities operating solely within Illinois, the decision to make the PTET election should be relatively straightforward. For those whose investments cross state lines — either because they are Illinois nonresidents investing in Illinois businesses, or because they are Illinois residents who own pass-through entities operating in other states — the decision can be more complicated and depend on the interplay between the laws of the various states.

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 still are waiting on their related cash refunds. The IRS has a well-publicized backlog of ERC claims, even with a moratorium on processing lifted. However, taxpayers should amend their returns to adjust wage expenses for the year to which an ERC claim relates, 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.

The bottom line on each of these issues is that, for the most part, current policy discussions should not affect 2024 filings. However, it may be wise to include the above topics in your discussions with tax professionals before finalizing your returns this year.

• Thomas Murtagh is a tax partner with accounting and consulting firm Forvis Mazars in Chicago. Lance Jacobs is a managing director with the firm’s Washington National Tax Office.