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.
Just before the end of the year, before the parties and celebrations consume our attention, let’s take one more look at how to lower your taxable income.
Today Is Not Too Late
Yes, it’s mid-December. But there’s still plenty of time to lower your taxable income and increase your potential tax benefits.
Don’t throw up your hands just because it’s so late in the year. Let this article move you to act. It’s right there within your reach.
Contribute to the Max
Whether you have an IRA, a 401(k), or even a Health Savings Account (HSA), deposit as much money as you can into these accounts before the end of the year. Not only will you catch a break by lowering your taxable income, but your future self will will be thankful that you are planning ahead.
Whether it’s through your employer or on your own (max IRA contributions are up to $5,500, and $6,500 if you’re over age 50), contributing to your retirement accounts is almost always a smart decision.
Contributions to your HSA for designated medical costs are also tax deductible. If you plan it right, you can save quite a lot while staying healthy. And you can help yourself pay down those high deductibles.
Bonus or Raise?
Because we all have to pay taxes on the income we receive, one of the ways to shift your taxable income to next year is to not receive it. Stay with me here.
If you defer part of your income until the new year, it won’t be counted as part of this year’s taxable income. Say, for instance, if you know that you’ll be in a lower tax bracket next year, it would be wise to defer some of your income late in the year until January’s payroll.
You could also negotiate with your employer about a raise for next year instead of a year-end bonus. The bonus would increase your taxable income for this year, and therefore increase your taxes. But a raise for next year would shield that income from this year’s taxes.
Tough Decisions
Depending on your financial situation, you do have the opportunity to reduce this year’s taxable income by claiming a loss on your capital investments.
Of course, what makes this decision tough is that you would have to cut ties with your under-performing investments and incur the loss. And that’s never easy. But if your capital losses outweigh your gains, Uncle Sam will let you use up to $3,000 to offset your regular taxable income.
With the winter weather comes colder temperatures and higher heating bills. While thinking about your utility bill won’t bring a smile to your face, you can take advantage of some generous tax credits offered by the IRS to soften the blow.
In an attempt to reduce energy consumption, and to expand the use of clean energy, tax credits are in place that will enable you to lower your tax bill when you file your taxes. Let’s see what they are.
Residential Energy Efficient Property Credit
The Residential Energy Efficient Property Credit is a tax credit worth up to 30% of the cost of alternative energy equipment installed on or in your home. That includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
To qualify for the credit, your home must be in the US. The home doesn’t need to be your primary residence, unless you are installing a qualified fuel cell property, so this credit is available to second and vacation homes.
The Residential Energy Efficient Property Credit has no dollar limit for most types of property, however if the amount of the credit is more than the amount of tax that you owe, you can carry the unused portion of the credit forward and apply it to next year’s tax return.
As it now stands, the Residential Energy Efficient Property Credit is available for both the 2015 and 2016 tax years.
Non-business Energy Property Credit
This credit expired at the end of 2014, but with Congress recent vote the tax credit has been extended through 2016.
This credit is calculated in two parts:
- Part of it is worth 10% of the cost of certain qualified energy-saving items you add to your primary residence during the year, which includes insulation, windows, doors and roofs.
- Part of the credit is for the actual cost of certain property, which can include water heaters and heating and air conditioning systems.
The credit amount for each type of property has a different dollar limit, but the total allowable credit has a maximum lifetime limit of $500, of which $200 can be used for windows.
The home must be located in the US, and you must have a written certification from the manufacturer that their product qualifies for this tax credit. The certification may be available in the product packaging, or it may be on the company website. If it isn’t, you’ll have to specifically request that they furnish you with a copy of the certification. The certification is not required to be included with your tax return, but you must keep a copy of it with your tax records.
You can’t do anything about the cold weather, other than find ways to keep warm. But while you’re doing that, you can also focus on purchasing energy efficient equipment, either for your home or in the form of a qualified motor vehicle, that will provide a reward in the form of a generous tax credit when you file your taxes.
It’s also important to note that, if you were to buy back the stock within 30 days of taking a loss, the IRS won’t let you claim the loss on your taxes.
Pile Up Your Business Expenses
Do you own a business? If you’re in a spot where you need to reduce this year’s taxable income, think about making your business-related purchases before the end of the year.
Make as many as you can. Be smart, but use your resources to make necessary expenditures so that you can claim them as deductions on this year’s taxes.
And if you feel that all of this information is wonderful and useful, but just a bit too late for your current situation, start planning for next year. You’ll never regret spending time on planning for your taxes.
It’s time to open your heart to a Festivus Miracle.
Brothers and sisters, family and friends, Festivus is an everyone-is-welcome December gathering that resists the commercial holiday disorder.
So don’t be a “two-face” when December 23 rolls around. It’s blasphemy to celebrate Festivus with an elaborately decorated aluminum pole or a fancy wrestling mat for the feats of strength.
Instead, it’s time to get back to the heart of non-commercialism with a DIY Festivus for the Rest of Us…on a budget of course.
The Festivus Pole
It would be easy to denounce the purchase of an expensive Festivus Pole. After all, this is a budget post, and the Festivus Pole is just aluminum. Why not go cheap, right? But think about the longevity.
Sure, it would save money to buy yourself a bargain pole. But it may only last for a few years. Rather, why not save up for a quality pole that will last for generations – a Festivus Pole that your great-grandchildren can gather around. Your local hardware store could cut you a piece of aluminum pipe for a few dollars.
Or you could embrace the passion of DIY and find a pole substitute! Items around your house that would make a good Festivus Pole substitute:
- table leg
- baseball bat
- shower curtain rod
- broom handle
- lamp stand
- paper towel roll
It’s Only a Floor
Friends, don’t get caught up in the commercialism of the holiday season. You don’t need to buy a special mat or new flooring for your Feats of Strength.
In fact, carpet burns, bruises, and splinters are as much a part of the Festivus tradition as the “Airing of Grievances.” So don’t throw your money away on a cushioned mesh surface or new wrestling mats. Whatever surface you have in your home is perfectly suited for pinning your family members to the floor.
Remember, it’s not the type of floor that matters; what counts is that you wrestle with loved ones this Festivus Season.
Festivus Dinner Re-Imagined
There’s no need for one family to spend hundreds of dollars on Festivus Dinner. Such an atrocity would send the founding father of Festivus into a riotous frenzy!
In the spirit of Festivus, and in the spirit of saving money, have everyone ‘Do It Themselves’ when it comes to dining. Invite all of your family and friends to bring their favorite food to your Festivus celebration. It’s a Festivus Pot Luck Miracle!
And don’t bother with expensive table dressings and decorations. Let the kids adorn the dinner table with miniature paper mache models of the Festivus Pole and the Feats of Strength.
Wherever you find yourself this season, stay true to the heart of Festivus. Get back to your roots. Enjoy quality time with your loved ones as you gather around the table and tell them all how they have disappointed you over the past year.
Happy Festivus!
