Temporary Tax Breaks Extended

College Students
College students, their parents and home owners benefit from extended tax breaks

Temporary Tax Breaks Good for 2014; Future Up to Congress

http://www.dailyfinance.com/2015/01/21/temporary-tax-breaks-extended/

WASHINGTON — Many taxpayers can rest easier knowing that Congress extended a series of tax breaks for individuals and businesses before adjourning in December.

But the effects will be short-lived. The extension only lasted until the end of 2014. The new Congress that took office Jan. 6 will have to decide once again whether to renew them. Going forward, the tax breaks may not be around. “Don’t rely on them,” said Mark Luscombe, principal tax analyst for Wolters Kluwer Tax & Accounting US.

Credits and Deductions

For the 2014 tax year, Kathy Pickering, executive director of the Tax Institute at H&R Block (HRB), estimates that one in six taxpayers will be affected by the extenders. They include college students and their parents; homeowners; residents of states without income tax, and more. Those who qualify could see larger refunds, or a smaller tax bill. Credits directly reduce the amount of taxes owed. Deductions reduce the income on which taxes are computed.

For individuals, the tax extenders are linked to expenses you’re likely to have, tax break or not, said Bob Meighan, vice president for consumer advocacy at TurboTax (INTU).

Live in a state that doesn’t have an income tax? If you itemize, the congressional extension means you can take a deduction for sales tax.

Are you and your child struggling with the high cost of college? The tax extenders bill passed by Congress includes the $4,000 above-the line deduction for tuition and fees. Above-the-line deductions reduce adjusted gross income, which is used to calculate eligibility for many tax breaks, including the tuition and fees deduction. This is only one of many tax breaks for higher education. Among the others: the lifetime learning credit or the American Opportunity Credit.

“Though income levels differ for each of these three benefits and people should see which one works best, the trend in recent years has heavily been toward the credits,” said Internal Revenue Service spokesman Eric Smith. The extenders also include an above-the-line deduction for schoolteachers in kindergarten through high school who spend their own money on books and supplies for the classroom. They can deduct up to $250 for this expense.

Help for Homeowners

There’s help, too, for homeowners — and those who fell behind on mortgages. Was your house underwater and some of your mortgage debt was forgiven? As a result of the congressional action, that forgiven debt will often not be counted as taxable income. Were you required by your lender to purchase mortgage insurance?  One extender will allow you to deduct the cost of those premiums.  The credit of up to $500 for making environmentally friendly improvements to your home also was renewed for 2014.  Among the things covered: energy-efficient heating or air conditioning, new windows and insulation.

If you’re 70½ or older and required to take a minimum distribution from your retirement accounts, the extenders allowed you to do this tax-free, by rolling it over directly to a charity. But you would have had to do that before Dec. 31 to avoid having the distribution counted as income and taxed as such.

In some previous years, when the tax breaks were extended late in the year, Congress included a special provision that allowed distributions made in January to qualify, the IRS said. There was no such rule this year.

Increasingly, these extenders have only been enacted for a single year. Luscombe says that’s because some in Congress believe they should be discussed as part of “fundamental tax reform.” And that could mean a push for lower individual rates in exchange for giving up some credits and deductions. Politically, that might be difficult for people who are fond of their tax breaks,” he said.

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