Good news! Congress today voted to extend a number of expired tax breaks, also called Tax Extenders, either permanently or temporarily under the Protecting Americans From Tax Hikes Act of 2015. Typically, tax extenders are voted on every year or two, usually leading to a nail biting finish at the end of the year close to the holidays. But this year, taxpayers received a year-end holiday gift, as almost half of the tax provisions were extended permanently and the remaining provisions were extended for at least a year – saving hard working Americans and their families millions of dollars.
The tax provisions range from tax breaks for teachers and families to energy saving tax benefits. According to Pew’s Analysis of IRS 2012 statistics, about 11 million tax filers claimed one or more tax extender benefits when filing in the past. As an example, the once expired State and Local Sales Tax Deduction alone saved taxpayers in some states close to $600 each.
Had some of these tax breaks for individuals and families not been permanently extended, millions of Americans were in jeopardy of losing these valuable credits by 2017, particularly since earning requirements to qualify for the Child Tax Credit were set to increase and income thresholds to qualify for Earned Income Tax Credit were set to decrease so higher income earners would be phased out of Earned Income Tax Credit.
In addition, the maximum Earned Income Tax Credit for more than two children was set to fall $700 – 36 percent of all children live in families with two or more children and 50 percent of the families have lower income and may qualify for Earned Income Tax Credit. Now millions of families can continue to receive the benefit since the provisions were made permanent.
Here are some of the tax extenders and how they may benefit you:
Tax Breaks Extended Permanently:
Enhanced Child Tax Credit – If you have a dependent child under the age of 17, you may still be eligible for a tax credit of up to $1,000. The enhanced law helps families with children still qualify for the Child Tax Credit. Without permanent passage, earnings necessary to qualify for the law were set to increase in order to get partial or full credit. For example, a family earning $20,000 with two kids would have seen their Child Tax Credit cut from $2,000 to about $810.
Enhanced Earned Income Tax Credit – If you are a low to moderate income earner, you may still be eligible for the Earned Income Tax Credit, allowing a family with three or more children to receive a credit of up to $6,242. The provision has been enhanced to continue to allow married couples with higher income to benefit and larger families with more than two children to continue to receive a larger credit. Had this tax credit not been permanently passed, families with more than two children would see their credit decrease $700 to the level for a family with two children.
State and Local Sales Tax Deduction – You still may have the option to choose between deducting state and local income tax or state and local sales tax, which is especially beneficial to you if you live in a state that doesn’t collect state income tax or if you made large purchases and paid substantial local sales tax. For example, taxpayers in the state of Washington with the highest claim rate saved an average of nearly $600 on their 2012 taxes. The State and Local Sales Tax Deduction is most often claimed in states that have no or limited income tax, but it can also be claimed even if you do have state income tax.
Educator Expense Deduction – If you are a teacher, you work hard for your money and your students. This tax benefit is going to allow you to keep more money in your pocket. You may be able to deduct up to $250 for money you spent for supplies and materials you purchased to keep your students on top of their “A” game. Do you and your spouse both teach? That’s double the benefit you can claim on your taxes at $500.
Tax-Free Qualified Charitable Distributions (QCDs) from Retirement Accounts – If you are 70-1/2 or older you may be able to exclude from income distributions up to $100,000 paid directly to a qualified charity from your IRA account. This is a huge tax savings for retired taxpayers required to receive distributions from their retirement who have paid off their homes and no longer have big tax deductions like mortgage interest.
Employer Provided Mass Transit and Parking Excluded from Income – All of your commuting and parking pains will still be recognized by your employer and the IRS since qualified transportation fringe benefits provided by your employer will be excluded from your income for combined transit pass and vanpool benefits up to $250 per month and qualified parking benefits up to $250 per month
Tax Breaks Extended Temporarily Through 2016
Mortgage Debt Exclusion – Unfortunately financial crisis can happen in your life that can’t be avoided. If you experienced a foreclosure, short sale, or loan modification, you will still be able to exclude the amount of debt forgiven on your principal residence from your taxable income up to $2 million.
Mortgage Insurance Premiums – You may not have been happy about the mortgage insurance your lender required when you purchased your home, but you may be able to deduct the amount you paid for the insurance.
Tuition and Fees Deduction – College students or parents may still be able to deduct college expenses including tuition, books, and other supplies, up to $4,000 even if you only took one class.
Credit for Nonbusiness Energy Property – Homeowners who made energy efficient improvements to their homes will still be able to claim the Residential Energy Property Credit worth up to $500.
Credit for New Qualified Fuel Cell Motor Vehicles – If you purchased a vehicle that runs on oxygen and hydrogen, which creates electricity known as a fuel cell vehicle, you may receive a credit up to $4,000 if your vehicle weighs 8,500 pounds or less. If you have a heavier vehicle your credit may be more depending on the vehicle’s weight.
This package also includes needed protections for taxpayers, giving funds for the IRS Security Summit and other needed programs designed to protect taxpayer identities.
These are some of the tax benefits that once again will help you keep more of your hard-earned money in your pocket at tax-time.
As with all tax laws, TurboTax is always up to date and gives you the tax deductions and credits you are eligible for. We know your money is important to you and that’s why we’ve planned ahead for these changes.