taxes

Expiring tax breaks on way back

Thursday, Dec. 10
Posted 11 a.m. EDT

It's a holiday tax miracle!

OK, that's a bit of tax hyperbole. But it's pretty amazing that, with three weeks left in 2009, at least half of Congress has dealt with tax laws set to expire on Dec. 31.

Almost every year, some popular, but temporary, tax breaks face extinction. And Congress usually gets around to making sure they continue. Because they are perennially extended, the collection is known as extenders.

Every once in a while, the taxes are continued for two years. Occasionally, one or two provisions get added life spans a bit earlier when they are tacked onto other measures handled earlier in the legislative session.

And not infrequently, they actually expire and are resurrected retroactively.

All this uncertainty makes it difficult for any of us taxpayers to plan properly. Tax professionals get just as upset. Even the IRS is terribly inconvenienced, with tax printing deadlines sometimes forcing the agency to make work-around arrangements when laws are retained long after the documents have gone to press.

Not only does such haphazard legislating cost us aggravation, but it also costs us real money, both as taxpayers footing the bill for the Internal Revenue Service's extra work, but also directly paying the extra fees to our tax pros that handle our affairs.

Popular tax breaks are back, almost: This year, though, we have a minor miracle. The House on Wednesday afternoon approved a package of extenders that includes some popular tax breaks. They are:

  • Deduction of state and local general sales taxes: This is the provision that allows itemizing filers to choose between claiming their state and local income taxes and their state and local sales taxes.
  • Additional standard deduction for real property taxes: This tax break gives filers who claim the standard deduction the ability to add up to $500 (or $1,000 if they are married and file jointly) in real property taxes they paid to that amount.
  • Deduction for qualified tuition and related expenses: This tax break, claimed directly on Form 1040 or 1040A, lets eligible filers subtract up to $4,000 in certain education costs from their income.
  • Deduction by educators for certain classroom expenses: On the same section of the tax returns where you'll find the education expenses deduction, there's the line where teachers and other educators can deduct up to $250 they spent on for books, certain supplies, computer equipment and other materials they used in class.
  • Direct tax-free transfer of IRA distributions to a charity: IRA owners that are at least 70½ years old would be able to send up to $100,000 of their retirement distributions directly to their favorite charity and not face any tax liability on the transfer.

In total, there are almost 50 expiring provisions that would continue. Many are for businesses. Others deal with charitable donations by companies. Some relate to energy issues.

And there also are the many ways to pay the $31 billion to keep these tax provisons in place.

The key revenue raisers would be increased enforcement of offshore accounts and higher tax rates for the financial practice used by money managers of carried interest.

Now it's up to the Senate to act. And with health care still dominating that body, the extenders still might not get any attention in that body until the very last minute.

Yep, with Congress it sure seems that the more things change, the more they stay the same.

Read more tax blogs.

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