Congress offers Tax Benefits for Christmas

With Congress passing the Protecting Americans from Tax Hikes Act (PATH), Christmas has come early for many taxpayers this year. PATH has been passed by both the House and the Senate and is expected to be signed into law by Barack Obama. The bill would make certain temporary tax benefits permanent and extend the coverage of others. Over the years, many temporary tax benefits have been renewed at the last minute, causing considerable uncertainty for taxpayers. The provision that allows for IRA charitable transfers, for instance, has been renewed no less than five times since 2006. In 2013, it wasn’t extended until after the New Year. PATH will simplify the process of calculating deductions and extend the following helpful benefits into perpetuity.

IRA Charitable Transfers – IRA owners over 70.5 years old may donate as much as $100,000 a year directly to one or multiple charities, and the donations count as part of the owner’s required annual withdrawal. There is no tax deduction for the assets being donated, but they don’t count as income. This can help donors avoid higher tax brackets, higher taxes on Social Security benefits, and higher Medicare premiums. The law will cover all donations made since January of 2015.

State and Local Sales-Tax Deductions – Taxpayers may deduct sales-tax payments rather than state and local income taxes on federal returns. This provision is most popular in states without an income tax, like Washington, Florida, and Texas.

Educator-Expense Deduction – Millions of K-12 teachers use this provision to deduct up to $250 of unreimbursed classroom expenses a year.

Mass-Transit Benefits – This provision allows employers to deduct the cost of employer-provided mass transit passes.

American Opportunity Tax Credit – Originally scheduled to expire after 2017, this provision allows taxpayers to offset up to $2,500 every year for as many as four years of post-secondary education.

529 Education-Savings Plans – Participants may now withdraw funds from their 529 plans for computers and other technological gear needed for education.

Benefits that are Expiring

Not all tax benefits are being extended. Relief for mortgage debt forgiveness, “bonus” depreciation, and tax credits for vehicles that run on alternative fuels are all slated to expire in 2016.

Tax Law and Preparation with Cohen & Burnett

Cohen & Burnett has served the area in and around Washington, D.C. for over 25 years. We are experts in estate planning and administration, retirement planning, and tax law and preparation. If you have any questions about how to position yourself for the rapidly approaching tax season, please visit our homepage or contact us directly.

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