If your New Years resolution is to pay more in taxes, this may be the year you actually accomplish your goal. In 2001, when the Economic Growth and Tax Relief Reconciliation Act was enacted, the decade of big tax breaks began. Though designed to be temporary, the Great Recession put the 2010 expiration date on hold. The fragility of the American economy struggling to recover from a global recession resulted in the easy decision to continue most of these tax breaks for an additional two additional years. Last year proved to be a lot stickier. 2013 started with the nation dipping its toe over the fiscal cliff, but in the end most tax cuts survived to see one more year. However, the fervent debate over the extension of these temporary tax breaks does not portend for the same ending for the 2014 tax year. Unless Congress has a change of heart after the tax year begins, a number of these much used tax breaks disappeared on January 1st.
Energy Efficiency Credits
If you have not already used the Energy Efficiency Credit in prior years, the 2013 tax year is the last chance to claim a $500 credit for any home improvements that made your home more energy efficient. This popular credit, enacted in 2006, has been used by more than 43.5 million taxpayers. If you still haven’t used this credit, visit EnergyStar.com to see if any of your home improvement purchases can be used when filing your 2013 tax return.
Mortgage Debt Forgiveness
In the past, if borrowers had part of their debt written off or forgiven, it was viewed as taxable income. The Mortgage Forgiveness Debt Relief Act of 2007 created a provision that did not make the amount taxable. Though extended before, many feel that the with the housing market coming back to life, coupled with rising home prices, this tax break may not be renewed.
Mortgage Insurance Premiums
Part of 2013 Fiscal Cliff negotiations was to re-instate the tax deductibility of mortgage insurance premiums for some qualifying taxpayers. This deduction was part of the American Taxpayer Relief Act of 2012 and allowed for some borrowers with itemized federal tax returns and an annual adjusted gross income of less than $100,000 to deduct 100 percent of their annual mortgage insurance premiums. With an adjusted gross over $100,000 per year, the deductible percentage decreases as the taxpayer income rises. As of December 31st, this deduction was not extended.
Itemized Sales Tax
For those who live in a state that doesn’t charge income tax, the Itemized Deductions for Sales Tax was created to offset their lack of ability to deduct state and local taxes on their Federal Tax Return. Though slated to expire in 2007, it has been renewed six times. As we start 2014, this deduction has not been continued.
The Educator Expense Deduction allows for elementary, middle school and high school educators to deduct up to $250 a year for classroom supplies that are not reimbursed by their school. This popular deduction, used by nearly 4 million teachers each year, has yet to be renewed. Though yet to be reinstated, most tax experts expect a continuance of this deduction in 2014.
Higher Education Tuition and Fees
A deduction for tuition and fees for up to $4000 was available to certain taxpayers in the 2013 tax year. This deduction was one of a number of available educational tax credits, including the Lifetime Learning Credit and the American Opportunity Credit. The Tax Institute of H&R block estimated that in 2010 more than 2 million taxpayers took advantage of this, saving more than 4 billion dollars. With a number of educational deductions to choose from, we will have to wait to see if this one is on the chopping block and not renewed in 2014.
Under the current law, commuters who take mass transportation, like trains or buses, are able to deduct $245 a month, or $2,490 a year, from their taxable income. As of January 1st, this deductible is slated to be reduced to $130 per month, or $1,560 a year.
One of the biggest challenges in tax planning each year is playing the waiting game to see which tax breaks are extended by Congress. Of the fifty-five tax provisions that expired on December 31, 2013, some could be brought back and implemented retroactively, and some will be gone for good. With the increasingly complicated and transient nature of tax laws, it is always a good idea to consult a tax specialist to help you maneuver the ever changing landscape.
One of the things we know for sure is that, because of the 16 day government shutdown in October, filing will begin later in 2014. The earliest date the IRS will begin processing electronic Federal tax returns is January 31, 2014. Or if paper filing, the IRS recommends waiting until at least January 28th before putting your return in the mail. So as we start 2014, we can predict that Tax laws probably won’t get more predictable, but they are likely to get more expensive.