9 Common Everyday Tax Deductions That Expired
Here are 9 Tax Deductions that expired at the end of 2011; for the millions of Americans that use these deductions you will find yourself with a higher tax bill next Spring when you do your 2012 taxes.
MORTGAGE INSURANCE PREMIUM DEDUCTION
Starting in 2006 new loans that required Private Mortgage Insurance (PMI) and the borrower met certain income limits could deduct the insurance premium for PMI from their taxes. This deduction was a temporary measure enacted at the beginning of the Great Recession and it was set to expire at the end of 2011.
TUITION & FEES DEDUCTION
Taxpayers who couldn’t claim the American Opportunity or Lifetime Learning Credit were able to have up to $4000 deducted from their taxable gross income to help pay for school tuition and other educational expenses.
RESEARCH AND DEVELOPMENT CREDIT
This is a tax break that provides credits to business that spend capital investments in Research and Development of new products or technologies. It was designed as a boost to help increase innovation and subsidize research into new areas that might not have been carried out otherwise. It has to periodically be renewed by Congress, in the past they always have but as of now they allowed it to expire even though it has broad support among both parties and both houses and from many business and scientific advocates. It is perhaps telling that a measure that has such broad support and that has been renewed many times before failed to be extended last year; the US government has proven itself to be very inept.
DEDUCTION FOR DIRECT IRA PAYOUT TO CHARITY
Previously retirees 70 ½ or older could direct up to $100,000.00 of the disbursements from their IRA (Individual Retirement Account) directly to charity and have those donations be excluded for taxable income. This was a program that also had broad support and benefited not only the retiree who was making the donation but countless others who would eventually be the beneficiary of the funds as used by the various charity organizations. This along with other recent eliminations of favorable tax treatment for charitable donations has severely affected many charities who count on wealthy large donors so they can provide much needed help to those less fortunate.
WRITE-OFFS FOR STATE SALES TAX
This is deduction that will adversely affect millions and millions of Americans who live in states that have little or no state income tax. This deduction allowed taxpayers to choose to either deduct state income taxes or sales taxes paid in state from their Federal taxes owed to the IRS. With the choice gone millions of taxpayers will not be able offset their Federal taxes as they have been able to do before.
HIGHER MASS TRANSPORTATION BENEFIT
This deduction was part of the 2009 Federal Stimulus program that increased the amount a person could have deducted from their paycheck to help pay for commuting and transportation costs from $120 to $230. The $230 mark brought this benefit in line with what is allowed for parking compensation. In 2012 this deduction will drop back down to $125 and any employees who have asked to have the amount deducted from their paychecks will find a rude surprise when their paychecks shrink even more because all the difference is now subject to full payroll taxes.
TEACHER’S SUPPLIES DEDUCTION
Previously teachers were able to deduct up to $250 for classroom supplies they paid for out of their own pockets.
ALTERNATIVE MINIMUM TAX PATCH
Don’t even get me started on the AMT! I have ranted and raved many times about the Alternative Minimum Tax, you can find out more about the AMT here. Basically the tax was an alternative tax created in the 1970’s designed to make sure the “rich” pay their fair share. It eliminates all other deductions and charges a flat 25% tax on total income. The problem is that the numbers are still locked into what was “rich” in the 1970’s and have not been updated for inflation. So guess what, under the numbers most American’s fall into the alternative tax. Every year Congress has to issue a one year temporary patch to update the numbers to reflect inflation otherwise it reverts to the 1970 numbers. Another thing that bugs me the most about this tax is that every year when they update the tax they do it so a more and more Americans fall under the higher tax and in reality the “rich” never really pay the tax. Check out the post I linked to in this section and you will see what I mean. It’s just another way the governments dupes the public with false promises all so that they can increase taxes on middle America.
PERSONAL TAX CREDITS APPLIED AGAINST THE ALTERNATIVE MINIMUM TAX
Previously it was possible to apply your tax credits such as the tuition credit or dependent care credit against what you would owe for the Alternative Minimum Tax. This along with the expired AMT patch will force tens of millions of Americans to pay significantly higher taxes in 2012.
There you have 9 of the most commonly used tax deductions that were allowed to expire at the end of 2011 and unless Congress is able to take positive action to fix these conditions you are very likely to see a much higher tax bill when you do your 2012 taxes.