12/21/2015
Congress Gives Tax Benefits for Christmas

Congress Gives Tax Benefits for Christmas

Congress passed the Protecting Americans from Tax Hikes Act (PATH), bringing an early Christmas to many taxpayers. PATH was passed by the House and the Senate and will soon be signed into law by President Barack Obama. The bill will make certain temporary tax benefits permanent while extending the coverage of others. Over the years, several temporary tax benefits have been renewed at the last minute and caused considerable uncertainty during tax season. The provision that allows for IRA charitable transfers, for example, had been renewed five times since 2006. Now, that popular provision, along with several others, will be extended 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.

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