Just like the holidays, tax season seems to creep up before you know it. While you may be thinking creep is the only thing the holidays and taxes have in common, Congress just passed a deal full of "gifts" that could benefit millions of tax filers.
Here's what happened. Late last week, Congress voted to permanently extend nearly half of the tax breaks up for vote, while more than half were extended temporarily, saving hard working Americans and their families hundreds of dollars in some cases. The tax breaks range from savings for teachers and families to energy saving tax benefits, and more. Had some of these tax breaks for individuals and families not been permanently extended, millions of Americans were in jeopardy of losing these valuable benefits by 2017.
You may be asking yourself what exactly are tax extenders and how do they help me?
Here's the skinny. Tax extenders are a broad set of temporary tax breaks that can impact how you're taxed on everything from your mortgage and tuition to your business and your car. Typically, a number of these expired tax breaks are voted on every year or two to decide whether or not they should be extended, usually leading to a nail biting finish at the end of the year close to the holidays. But this year, taxpayers received a much nicer holiday gift.
Whether you're a teacher spending your own money on craft supplies for your class, a student buried by tuition and book costs, a homeowner who sprang for energy efficient improvements to their home, or splurged on an a fuel efficient vehicle, this vote means more money in your pocket when it comes time to filing your taxes.
To help you figure out which benefits you may qualify for, here's a sampling of some of the more popular tax extenders that were passed, either permanently or temporarily.
Key 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.
Educator Expense Deduction - This tax benefit is going to allow teachers to keep more money in their pocket, as they may be able to deduct up to $250 for money spent on supplies and materials purchased to keep 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.
Key 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.
Key Energy Tax Breaks Extended:
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.