A tax bill from the United States Congress that is expected to be passed just in time for the holidays contains several permanent extensions of various tax benefits that have long been only temporary. The Protecting Americans from Tax Hikes Act of 2015 (PATH) will most likely pass through Congress in its current form by the middle of next week.
With PATH, millions of taxpayers will be able to put an end to what has been a frustrating cycle. In the past, lawmakers have enacted several popular temporary provisions, before leaving the taxpayers wondering whether or not the provisions would be renewed until the last minute.
One such provision allowing IRA charitable transfers has been renewed on five separate occasions since 2006. This confused many taxpayers who were perplexed by rules for making retroactive donations. The decision to make such provisions permanent should provide more security and well-being for taxpayers.
Although the current bill does not extend all popular tax breaks on a permanent basis, it should make things considerably easier for many taxpayers. Some benefits that will not be extended permanently and are set to expire in 2016 include mortgage-debt forgiveness, bonus depreciation and a tax credit for vehicles that use alternative sources of energy.
That being said, there are several provisions that are set to become permanent fixtures. As mentioned earlier, one is the IRA charitable transfers. This provision allows IRA owners aged 70 and older to donate as much as $100,000 of their account assets per year to charity. These donations will not count as taxable income, which helps elders avoid taxes. However, the provision requires that there be absolutely no benefit or gift given to the donator. Even a $25 tote bag for donating thousands of dollars could eliminate this benefit.
Another permanent provision is the state and local sales-tax deduction, which enables taxpayers to deduct sales-tax payments instead of state and local income taxes on their federal tax return. This provision is mostly used by residents of states without an income tax, such as Florida, Texas and Washington.
Several other provisions are also set to become permanent. The mass transit benefit program offers benefits for public transit passes provided by employers. The educator expense deduction benefit allows K-12 teachers to deduct as much as $250 unreimbursed expenses for school supplies. The American Opportunity tax credit allows college students to deduct up to $2,500 annually for up to four years of postsecondary education. Finally, the 529 plan expanded benefits will continue, allowing for money from 529 funds to be used on computer equipment and technology.
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