Alternative Minimum Tax Patch
Alternative Minimum Tax (AMT) was created years ago to prevent high-income taxpayers who are eligible for so many tax breaks that they would pay little or no tax. Unfortunately, over the years, the AMT exemption amount has not been indexed for inflation, meaning more and more taxpayers are subject to this tax. The AMT patch temporarily increases the AMT exemption amount for 2008. This will preclude 20 million middle-income taxpayers from being subject to this tax.
Reauthorizes Expiring Tax Deductions for Individuals
Teachers' Classroom Expense Deduction:
Teachers and other education professionals are allowed a deduction of $250 for certain out-of-pocket classroom expenses. Some examples are supplies, books, equipment and computer software. For more information on this deduction, please refer to our article in Henssler University, "Educators – Keep Those Receipts."
State and Local Sales Tax Deduction:
Taxpayers who itemize their deductions are allowed to deduct the larger of their local sales taxes or their state and local income taxes. This is useful for taxpayers who live in states that have no income tax, or for older taxpayers who live in states that grant retirement exclusions from income tax.
Real Property Taxes – Additional Standard Deduction:
Congress has increased the standard deduction by $500 for single and $1,000 for married filing jointly. This is only available for 2008. This was done to help those who have real property taxes but do not have enough deductions to itemize on their personal returns.
Higher Education Tuition Deduction:
The above-the-line higher education tuition deduction is extended through December 31, 2009. This deduction allows eligible taxpayers to deduct certain costs of higher education paid for themselves or their immediate, dependant family.
Tax-Free IRA Distributions for Charitable Purposes:
This tax-free distribution had expired January 1, 2008 but is now extended through December 31, 2009. The maximum distribution is $100,000. Of course, no charitable contribution deduction is allowed as this would be "double-dipping."
Reauthorizes Expiring Deductions for Businesses
Research Tax Credit:
This credit is extended through 2009 for amounts paid or incurred through 2009. There are also some positive modifications to this credit.
Leasehold and Restaurant Improvements:
The extension of the 15-year
depreciation (rather than 39
years) for certain leasehold
improvements has been extended
through 2009.
Energy Tax Incentives
Energy tax incentives were extended for consumers, producers and manufacturers. Code section 179D, Section 25C and 25D involve deductions for making commercial buildings more energy efficient, making personal residences more energy efficient and incentives for small wind investments and geothermal heat pumps.
Congress extended incentives to encourage the production of renewable energy. Also, effective after December 31, 2008, employees may exclude from their income employer-provided transportation such as transit passes. The exclusion amount is $20 per month.
National Disaster Relief:
Those taxpayers affected by natural disasters after December 31, 2007 and before January 10, 2010 may be eligible for certain additional deductions and other targeted tax breaks.
Offsets for These Tax Breaks:
Broker Basis Reporting:
Brokers must report the cost basis when reporting sales transactions and must also indicate whether these sales are short term or long term. Securities that are subject to this new reporting are stocks, bonds, debentures, commodities, derivatives and other financial instruments designated by the Treasury. This reporting takes place with stock purchased in 2011, mutual funds purchased in 2012, and other securities purchased in 2013. This is projected to raise $6.7 billion over 10 years.
FUTA Tax 0.2 Percent Increase Extended:
This 0.2 percent increase is extended through 2009. It is calculated on the first $7,000 paid to each employee. This is projected to raise $1.5 billion.
