The Wall Street Journal recently published an article on temporary taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. laws, better known as tax extenders.
Tax extenders are a set of tax provisions that are only authorized for a year or two. When the provisions are near expiration, Congress decides whether to extend them or not, hence the name tax extender. Currently, all 50 or so tax extenders are expired for 2015, but Congress will likely pass them retroactively as they have in the past.
Some tax extenders are genuinely good policy, while some are bad. However, the concept of an extender is silly. They create unnecessary uncertainty for individuals and businesses who need to make important long term financial plans.
The Wall Street Journal outlined three tax extenders that may be on the chopping block when Congress picks up the issue of extenders this year:
Under the current tax code, charitable contributions made directly from IRA retirement accounts are tax-exempt. Individuals aged 70.5 years old and above can donate up to $100,000 to qualified organizations without claiming that dollar as taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. .
Taxpayers who filed form 1040 and itemize deductions can get a deduction for state and local income tax. This extender allow individuals to choose either the income tax or state and local tax. In FY 2013, 9.8 million taxpayers claimed for this exemption and it cost the federal government $16.2 billion. This deduction is popular in states with no income tax such as Florida and Washington.
Educators can deduct up to $250 for out of pocket expenses classroom supplies (or up to $500 if married to an educator and filed jointly). K-12 teachers and people who work 900 hours at qualified educational institutions are eligible for this deduction.
We have previously raised concern about this specific tax extender in the past:
“If a teacher isn’t even sure whether the tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state and local taxes paid, mortgage interest, and charitable contributions. will exist in the current year, because Congress hasn’t passed a bill yet, how is that teacher supposed to know whether or not to save his or her receipts on the qualified expenses?”
Congress’s indecisiveness needs to end; either let these tax breaks expire or make them permanent once and for all. That way, individuals and businesses can make more informed decisions without the risk of uncertainty.
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