Over 50 temporary tax provisions that expired at the end of 2013 were renewed and extended on Dec. 16, 2014. These provisions were extended through Dec. 31, 2014, but they are retroactive to Jan. 1, 2014. Congress will have to act again to renew the provisions for 2015. Here are a few of the more common tax exemptions and how they could affect your clients.
Educator Expense Deduction
The tax provision that allowed teachers to deduct out-of-pocket expenses for classroom supplies without itemizing deductions was renewed with the tax extenders bill. The deduction applies to up to $250 worth of eligible expenses, including books, computer equipment and supplementary materials. Teachers who have been saving their receipts this year will be able to use them not that the last-minute retroactive extension has passed.
Forgiven Mortgage Debt Exclusion
Since 2007, mortgage debt that was forgiven by a lender has been excluded from a taxpayer's income. This and similar tax exemptions allowed taxpayers who were down on their luck to get a fresh start without a large tax burden. Because of the extensions passed in mid-December 2014, forgiven mortgage debt will also not be considered income for the 2014 tax year.
Private Mortgage Insurance Deduction
The mortgage industry requires home buyers with low down payments to buy private mortgage insurance to protect the mortgage issuer in case of a default. A 2007 tax provision allowed the deduction of the premiums for low-income home buyers on schedule A along with mortgage interest. With the extension, payments made in 2014 are still not taxable.
Tax-Free IRA Distribution for Charitable Contributions
Tax exemptions to increase charitable giving often target older Americans facing a tax burden on their retirement savings. This exemption allows seniors 70-1/2 or older to withdraw up to $100,000 tax free from their IRA accounts to give to public charitable organizations. Although all charitable contributions are deductible if you itemize, this provision reduces the tax burden of charitable seniors who did not otherwise need to itemize their deductions.
Work Opportunity Tax Credit
The WOTC extends a tax credit to employers who hire certain workers, such as veterans. For every qualified worker hired, taxable employers can receive a tax credit as high as $9,600, and tax-exempt employers could receive as much as $6,240. Now that Congress has extended the tax exemptions, this credit will apply to hires made in 2014. However, moving into 2015, Congress will have to act again to renew the exemptions.
Keep abreast of the status of temporary tax provisions so you can explain them to clients. It's important to watch for possible last minute retroactive extensions of tax exemptions and credits like the one Congress recently passed. At the same time, do not always expect all the extensions to go through before the new tax year. Prohibitive costs and a desire for a responsible budget have legislators reluctant to extend many of these deductions.
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