Saturday, December 5, 2015

The popular tax breaks that could go away

In what has become a pretty much annual ritual, taxpayers and tax preparers are waiting on Congress to renew dozens of expired tax breaks.
The deductions and credits, some of which are commonly used by consumers and small business owners, expired at the beginning of the year. But lawmakers still have time, since tax returns won't be filed until early next year. The tax breaks would need to be reinstated for 2015.
As of early Wednesday, legislators had not reached a bipartisan deal, according to Julia Lawless, a spokeswoman for U.S. Senate Finance Committee Chairman Orrin Hatch, R-Utah. "Members are continuing discussions to develop a workable package that will provide responsible tax relief for American families and job creators," she said in a statement.
While Congress may decide to bring back most of the credits at least temporarily, some of them may be made permanent and others could be eliminated. About 1 in 7 taxpayers could be affected by the changes, according to estimates from H&R Block.
"It does make tax planning and business planning more difficult when things are up in the air," said Jackie Perlman a research analyst for the Tax Institute at H&R Block. Here are the tax breaks that could go away unless lawmakers bring them back:
State and local sales tax deduction. Taxpayers have typically had the option of deducting their state and local income taxes or their state and local sales taxes, but the option for deducting state sales tax expired this year. The break has been especially helpful for people in the seven states that don't charge income taxes. But even some consumers who pay state income taxes may have saved more on taxes in the past by deducting sales taxes instead of income taxes in years when they made major purchases, such as a car, Perlman says.
Educator expenses deduction. This break let teachers deduct up to $250 of unreimbursed expenses. That would include money spent on books, computer equipment and other supplies.
Tuition and fees deduction. Families were able to reduce their taxable income by up to $4,000 by deducting money spent at a college, university or community college. The credit was allowed for single people making up to $80,000 and married couples making up to $160,0000.
Charitable distributions from an IRA. This break allowed taxpayers who were at least age 70½ to roll over up to $100,000 to a charity from their IRA. The donation would count as the required minimum distribution that IRA holders need to take out after age 70½. And consumers using this option would not need to pay taxes on the amount donated, making it more tax-efficient than donating straight cash.
Mortgage debt relief. Any debt that gets forgiven is typically registered as taxable income, but this tax break saved people who lost their main homes to foreclosure from having to report the remainder of their mortgage as income and from having to pay taxes on the amount.
Mortgage insurance deduction. Mortgage insurance premiums could previously be deducted as part of the mortgage interest deduction to reduce a person's taxable income. But that will no longer be the case if Congress fails to act.