May 8, 2015

As 2014 drew to a close, Congress voted to extend 54 “temporary” tax cuts for the 2014 tax year. The Senate vote finally passed the week after Congress was supposed to adjourn for the year, producing a collective sigh of relief among taxpayers. The numerous cuts will benefit a wide range of taxpayers, ranging from large businesses and corporations to struggling homeowners. The list below describes eight of the most popular deductions that were extended.

tax-cuts

  • Tuition deduction. Whether you itemize your taxes or not, this tax cut allows you to deduct up to $4,000 in tuition, fees and related expenses for post-secondary education for yourself or your dependents.
  • Mortgage insurance premiums. If you are required to pay mortgage insurance to your lender, this deduction allows you to deduct the cost of your premiums if you itemize your tax return.
  • Mortgage debt exclusion. The mortgage crisis has forced many homeowners into foreclosure or a short sale. If your house was sold for less than you owe, the bank will often forgive the debt. However, the IRS considers the amount forgiven to be taxable income. This deduction allows you to exclude the forgiven amount from your income.
  • Teachers’ deduction. Whether a teacher itemizes their tax return or not, this tax cut allows him or her to deduct up to $250 in out-of-pocket expenses for classroom supplies.
  • Commuting costs. Commuters can reduce their pre-tax income based on their commuting costs. People who drive to work and pay to park may deduct $250 per month. Commuters using mass transit may deduct $130 per month.
  • Sales tax. If you itemize your tax return, this measure allows you to deduct the state and local sales taxes you’ve paid in 2014 instead of state income taxes. This deduction especially benefits individuals living in one of seven states that do not have a state income tax.
  • Energy credit. You can deduct up to 10 percent of the cost of qualified energy-efficient products (between $50 and $500) purchased for your home in 2014. This deduction does not apply to new homes. The qualified product must have been bought and installed into your primary residence in 2014.
  • IRA withdrawals for charity. If you are over 70 1/2 years old, you may make a tax-free charitable contribution from your IRA up to $100,000. The contribution will not count as a deduction, but it will decrease your taxable income.

congressAs advantageous as these tax breaks may be in preparing your 2014 tax returns, don’t get used to them. They technically expired as of December 31, 2014, which means Congress will go through the same process at the end of this year. And while these cuts benefit millions of individuals, analysts estimate the extensions will add $42 billion to the national debt over the next 10 years.  Don’t be surprised if Congress allows many, if not all of these tax breaks to expire as a result.