Your Money: Tax deductions on the chopping block
August 13, 2012
You don’t need a crystal ball to predict this year is going to be a wild ride in politics. Closer to the elections, I’ll present a comparison of the two candidates’ tax proposals, but for now I want to focus on what’s staying and what may go away – regardless of who’s elected.I’ve received more than a few panicked phone calls this year regarding mortgage interest and charitable donations. If I were a betting gal, I’d put some money down that these donations are not going to disappear. There is a solid possibility these deductions may be limited in the future – such as deductions for mortgage interest for second homes and multi-million dollar mansions – but the majority of homeowners can rest assured their mortgage deductions aren’t going away. Similarly, deductions for charitable donations have already seen a slight cut (IRA distributions are no longer tax free if donated to charity), but there is no strong political push to eradicate those deductions altogether.There are many other deductions on the chopping block as deficit reducing measures, regardless of who wins in November. First and foremost is the Alternative Minimum Credit. I’ll set aside a whole column for that topic, but if your family makes more than $150,000, you should start familiarizing yourself with that topic, because it could have a big impact on your taxes.Other deductions are much smaller scale, but when added together could cause your bottom line to change by several thousand dollars. As of now, these have expired for the 2012 tax filing year, so unless Congress acts proactively to bring them back, you should consider these in your tax planning. Up until this year, teachers could deduct $250 worth of classroom supplies, you could choose to deduct either state income tax paid or sales tax paid, and you could deduct your mortgage insurance premiums paid. All three of those have disappeared.College expenses see another big hit. Prior to 2012, some high-income parents could deduct up to $4,000 of tuition. While the American Opportunity Education Credit and Lifetime Learning Credit still exist, the $4,000 deduction was available to families whose income surpassed the limits for the credits. This alone could change a taxpayer’s bottom line by as much as $1,000, so if you think you benefited from this in the past, you should check your 1040. If you see a $4,000 deduction on Line 34, Tuition and Fees, then you should expect a change on this year’s return.While it’s been off and on for a few years now, the residential energy credit for homeowners who make energy-saving improvements appears to be off for now. This may not have too big an impact, because the $500 credit was only allowed to be used once in a period of years, but those who are just getting around to making home improvements will find they’ve missed the boat.What can you do about these tax deductions? Unfortunately, very little except take a look at last year’s tax return, see if you benefited from any of these deductions, and then start saving your pennies.Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.
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