Don't miss out on 8 tax breaks that expire in 2013
(MoneyWatch) These days, the U.S. tax code is about as stable and long term as a celebrity marriage.
According to the American Institute of CPA's (AICPA) and the Joint Committee on Taxation, 55 tax provisions expire in 2013.
Thanks to the American Taxpayer Relief Act of 2012 (ironically named because it doesn't provide tax relief for all working Americans and it was passed in 2013, not 2012), all workers will pay more in taxes and some folks will pay a lot more. Some of these expiring tax provisions are not likely to affect you -- like the reduction in rum excise taxes to Puerto Rico and the Virgin Islands.
But others, well, they might end up costing you. You need to know what tax breaks go away next year, so you can do some planning now to reap some of the savings while there is still time left to do it. Here are eight to consider:
Section 179 expense deduction:
This deduction is a whopper for small and mid-size business owners. In 2013, business owners can immediately deduct up to $500,000 of qualifying assets they need to buy to run their business (office and medical equipment, machinery, etc.) But in 2014, unless Congress acts to extend it, the limit that's immediately deductible plunges to $25,000. If you expect to buy more than $25,000 of business use property in 2014, then make those purchases now.
Deduction for state and local sales taxes:
Folks who pay little or no state income tax, but incur a large amount of state sales taxes (think about the sales tax you pay when you buy a boat, car, etc.) can choose to deduct as an itemized deduction the greater of the amount they paid in state income OR sales tax. The deduction was retroactively restored for 2012 and is set to expire at year end.
Tax-free IRA distributions to charity:
Up until 2011, IRA owners at age 70 1/2 were allowed to distribute from their IRAs up to $100,000 tax free as long as it was sent directly to a charitable organization. This was also retroactively restored for 2012 and is extended through 2013.This tax break makes more sense for higher income folks than taking a distribution from your IRA and then donating the cash to a charity and claiming an itemized deduction. The reason is that higher income folks will lose some of their itemized deductions because of the deduction phase-out that was enacted in the beginning of this year. Instead make a donation directly from the IRA and the IRA distribution to the charity would be 100% tax free.
Educators expense deduction:
A tax deduction of up to $250 of out-of-pocket costs for school and classroom related supplies will expire at the end of 2013. I don't think this tax break will really be a budget buster for educators and their families, but every little bit helps.
Energy-efficient home improvement tax credits:
A tax credit of $500 for the cost of specified energy-saving home improvements to your primary residence will expire at year-end. So if you were thinking of making those renovations, now is the time.
Another related credit -- the energy efficient home credit -- is also set to expire this year. This is a tax credit of $2,000 per home, which is currently permitted to a contractor who builds a home to be used by the customer as a residence.
Education Tax Deduction:
The higher education tuition deduction, which allows folks to deduct between $2,000 and $4,000 of qualified tuition costs, was retroactively restored for 2012 and will expire at the end of 2013.
Exclusion from income for discharge of debt on principal residence:
Folks who walk away from their home leaving the bank on the hook for the unpaid mortgage (through foreclosure, deed in lieu or short sale) are not required to report the amount of unpaid and discharged debt as taxable income in 2013. Troubled homeowners should get these proceedings wrapped up before year-end because in 2014, the discharged debt will be taxable income.
