Tax Benefits That Expired in 2013 Could Hit ALL Taxpayers

Richard / December 8, 2014

Tax Breaks That Expired in 2013 Could Hit 17% of Taxpayers Today

The mortgage insurance premium deduction, mortgage debt relief tax benefit, educator expenses deduction, tuition and fees deduction, state and local sales tax deduction, charitable IRA distribution provision and non-business energy property credit have expired. According to a new analysis done by the Tax Institute at H&R Block, the expiration of tax benefits could negatively impact as many as one in six taxpayers.


Consumers and Small Businesses could be hit by Tax Breaks Expiring

Consumers and Small Businesses could be hit by Tax Breaks Expiring


What Happens if Congress Doesn’t Renew Expired Tax Breaks?

About 17 percent of taxpayers would no longer receive the same tax relief they experienced in 2013 unless Congress renews all 55 expired tax breaks. To emphasize just how beneficial these past tax breaks have been to taxpayers, the Tax Institute of H&R Block estimated that five of the more widely used expired tax breaks delivered over $87 billion in tax benefits to individuals in 2013.

Changes Facing Taxpayers for This Upcoming Tax Season

According to the Executive Director of the Tax Institute, Kathy Pickering, taxpayers will face changes for the upcoming tax season regardless of what decision Congress makes concerning expired tax breaks. This means that residents belonging to seven states – including Florida, Texas and Washington – will no longer be able to deduct state and local sales tax from their federal returns. Homeowners who previously claimed their mortgage insurance premiums as an itemized deduction would lose their ability to maximize their tax savings. Moreover, teachers would no longer be able to reclaim a considerable portion of their out-of-pocket expenses for classroom supplies using the $250 educator expenses deduction.


Small Business Foreclosures Are sometimes Result from Tax Inefficiencies

Small Business Foreclosures Are sometimes Result from Tax Inefficiencies


How Taxpayers on the Brink of Foreclosure Will Be Affected

One of the most devastating effects of the recession was the impact it had on millions of homeowners who could no longer afford to pay their mortgages. Thankfully, the Mortgage Debt Relief Act, passed in 2007, allowed these homeowners to claim a taxable income exemption from the discharge of debt on their principal residence. Unfortunately, many taxpayers’ debt discharges could soon turn into taxable income, which in turn could incur a heavy tax bill when they file in 2014. This would not only slow down the housing market’s rate of recovery, but also force millions of homeowners to stay in homes worth less than their mortgages.

The Pattern of Congress Extending Tax Breaks

The Tax Institute of H&R Block noted that Congress has retroactively or proactively extended or renewed expired tax benefits five times in the past decade between the last to the first part of the year. However, Congress’s pattern of renewing much needed tax breaks just in the nick of time for millions of taxpayers might finally be broken, so taxpayers should start preparing  to look for alternative benefits to receive tax relief.

Filing Tax Returns in 2015

To make sure that they receive the most savings on their returns, taxpayers should take time out to review the expired tax breaks they used in the past and learn about active alternative benefits posted on the IRS’s website that could take their place. Examples of credits and deductions that an individual or small business could still take advantage of include: the Earned Income Tax Credit (EITC) that allows qualified taxpayers who make less than $52,427 during 2014 to keep more of what they earned; the Health Coverage Tax Credit (HCTC), which pays 72.5% of health insurance premiums to eligible individuals and their families; the Adoption Credit, which provides relief for qualified taxpayers who adopt an eligible child; and finally, the Business Expense Deduction, which helps business owners claim deductions on certain business expenses including depreciation.

Expired Tax Breaks Facts

Many taxpayers will be eligible to claim alternative credits; however, these credits are not identical to expired tax breaks and have unique qualifications and restrictions. The fact remains that one in every 14 taxpayers (totaling 10 million tax returns) will still be affected by the expiration of the state and local sales tax deduction, which translates to $17.5 billion in lost tax savings. In addition, teachers who claimed the educator expense deduction on about four million returns will lose more than $996 million of out-of-pocket expenses. Taxpayers who applied the mortgage insurance premium deduction on over 4.5 million tax returns will lose $6.2 billion in tax breaks.

How Students Will Be Affected

There were many areas where students qualified for tax deductions in 2013. Last year, students were able to use the tuition and fees benefit to deduct $4.5 billion on over two million returns. Although this benefit is no longer available, students may still be eligible for the Lifetime Learning tax credit or the American Opportunity tax credit, which have different income ranges and different eligibility criteria. If a student qualifies for more than one tax break, he or she could use whichever tax break is more beneficial.

Lost Tax Savings for Homeowners

Homeowners who collectively filed 500,000 tax returns using the mortgage debt relief tax benefit will lose $58 billion. Taxpayers who saved $1.5 billion for making energy improvements will no longer receive the Residential Energy Efficient Property Credit. Additionally, taxpayers who increased their home’s heating and/or cooling efficiency can no longer use the Non-business Energy Property Credit. Lastly, the 14.2 million taxpayers who rolled over tax free IRA distributions to qualified charitable organizations in 2013 will lose this option when filing next year.

Quick Tax Filing Tip for Small Businesses

Tax time is always a critical time of year for a small business.  Some start off by doing their taxes in-house, then upgrading to outside tax-pros to manage it for them.  Regardless of the choice, when you efile 1099 forms, it’s a smart option because of the speed of delivery, the reduction of paper usage, and the ease of record-keeping.  The ultimate benefit is the speed of any refund your business could receive.

There are several e-file solutions available on the market. If you’re using someone outside of your office to file your tax forms, make sure they choose a reliable service for their e-filing.  If doing your taxes in-house, search for an efficient way to prepare all the forms and deliver them to employees and contractors.

If you need to file 1099 electronically, an industry leader in e-filing services is eFile4Biz.  They make the job easier on you by doing both the e-file of you 1099’s and w-2 forms, including printing and delivering the paper copies to recipients as well. Search for the providers that will do the majority of the work for you, so you can focus in running your business, instead of doing taxes. Visit our Bitly and let us know what you though about this post.

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