Idaho income tax law generally conforms to federal income tax law. In fact, one of the first items on the Idaho Legislature’s agenda when they convene in January is the annual conformity bill. But conformity doesn’t mean that preparing an Idaho tax return is as easy as taking the taxable income from your federal tax return and calculating the Idaho tax. There are many differences. What conformity does mean, however, is that what happens in Washington affects the amount we pay in Idaho taxes.
So what changes are in store for 2014? To be truthful, we don’t know yet. Congress can make changes throughout 2014 and sometimes beyond.
What we do know for 2014 is that there are automatic changes to income taxes resulting from the sunset provisions in prior law – that is, if Congress doesn’t act to make changes.
The changes to depreciation rules will probably affect the Idaho taxes of more businesses and their owners than any other change. The Section 179 maximum deduction is reverting to $25,000 for 2014. The deduction is reduced dollar-for-dollar for businesses that purchase more than $200,000 of eligible assets in 2014, and is eliminated for purchases of $225,000 or more. On the positive side, the Idaho Investment Tax Credit is still available for most personal property purchased and used in Idaho. With reduced Section 179 limits, more assets will be eligible for this credit.
Individuals with higher taxable income will see additional Idaho taxes resulting from other changes to the federal taxable income. The phase-outs for the personal exemptions and the itemized deductions were suspended for 2011 and 2012. Those phase-outs are back for 2013, and they affect Idaho taxpayers as well.
Here is a summary of some other tax changes affecting Idaho taxpayers:
Prepaid wireless services
Idaho has a new 2.5 percent fee on sales of prepaid wireless services made after 2013.
An inequity in Idaho tax law relating to losses from Ponzi schemes was addressed. The deductible loss from Ponzi schemes was, in certain cases, lower on Idaho returns than on federal returns. If the taxpayer recovered some of the loss in a subsequent year, the amount taxable in Idaho was the same as the amount taxed on the federal return. To correct this inequity in Idaho’s tax code, the Legislature passed a bill allowing a deduction equal to the loss recovered to the extent the taxpayer did not receive a deduction in a prior year.
A new law effective July 1, 2013, allows the Idaho State Tax Commission to release information from tax returns that will identify the name and address of a person using a stolen Social Security Number. Victims of identity theft need this information to file a police report and begin the process to resolve problems associated with identity theft.
The Legislature added a provision stating that donations made to dedicated accounts within the Idaho Community Foundation Inc., which exclusively support the charitable purposes that would otherwise qualify for the tax credits, will qualify for the Idaho tax credit. A number of smaller charitable organizations use the foundation’s services to limit their fundraising costs.
The Legislature has ruled that the first $250,000 of guaranteed payments made to nonresident or part-year resident partners are sourced to the state where the services are provided. Guaranteed payments in excess of $250,000 are sourced to Idaho, based on the Idaho apportionment factor.
Net operating losses
Prior to 2013, if a taxpayer did not want to carry an Idaho net operating loss for two years, an election had to be made directly on the loss year tax return. The election box has been eliminated on the 2013 tax returns. If the taxpayer wishes to carry back the loss, the prior year amended return(s) must be filed within one year of the end of the loss year. For example, a calendar-year taxpayer with a loss on his 2013 tax return must file a prior-year amended return claiming the carryback loss by Dec. 31, 2014. If the prior year amended return(s) are not filed in a timely manner, the loss may only be carried forward.
Idaho state income tax garnishments
Effective July 1, 2013, the garnishment for state income taxes is limited to 25 percent of gross wages. Previously there was no limit, and the employee’s entire paycheck could be garnished.
Defense of Marriage Act
In 2013, the Supreme Court determined that certain provisions of DOMA were unconstitutional. The Internal Revenue Service announced that same-sex couples who were legally married in a state that allows same-sex marriages are required to use the “married filing jointly” status when filing their income tax returns for 2013. States that do not recognize same-sex marriages are not required to follow federal rules. Idaho has announced that it will not recognize same-sex marriages for income tax filing. Affected individuals are required to refigure their federal income tax using the single filing status, or the head of household status if they are qualified to do so. A copy of either the refigured federal tax return or equivalent computations must be attached to their Idaho income tax returns.
Fae Riegert is a certified Public Accountant and tax manager with Harris & Co. PLLC in Meridian. Learn more at the Harris & Co. PLLC 2014 Economic & Tax Planning Update on Jan. 28 with Dean Zerbe, former tax counsel to the U.S. Senate Committee on Finance and managing director of alliantgroup in Washington, D.C., and Derek Sanotos, Idaho’s chief economist. For more information, contact Tara Davis at firstname.lastname@example.org or visit harriscpas.com and click on “Events.”