Bailout Bill Extends Tax Breaks for Individuals
Military.com | Kyle Stone
In 2008, legislation was passed to help rescue US markets and the economy. But did you know that these bailout bills also included a bundle of income tax breaks?
The biggest ones are known as “extenders” – popular tax breaks that might seem permanent to most taxpayers, but actually must be renewed every year or two.
Stuffed inside the Emergency Economic Stabilization Act are more than 100 tax provisions worth $150 billion in tax benefits. They include:
• Another “patch” to protect middle-class taxpayers from having to pay $61.8 billion in alternative minimum taxes, or AMT, a tax intended for the wealthy.
• Extensions of some popular tax breaks for 2008 and beyond that were scheduled to expire this year, including deductions for classroom teachers and for higher-education tuition.
• Major tax breaks for victims of the 2008 Midwestern storms, floods and tornadoes.
AMT Patch Completed in Time for 2008 Filing Season
Once again Congress has applied a one-year patch on the AMT. That means that millions of middle-class taxpayers will be spared from paying higher tax bills.
The AMT was conceived in 1969 as an alternative tax to ensure that the wealthiest taxpayers, even with their big deductions and loopholes, didn’t avoid paying income taxes. But because the tax was not adjusted for inflation, it has increasingly reached down into the middle class.
Recently Congress has passed a series of one-year fixes, rather than overhaul the AMT itself. Last year, the long delay in passing the patch required the IRS to briefly postpone accepting some 2007 tax returns.
With the AMT patch and other tax changes included in the bailout bill, taxpayers should be able to file as usual starting January 2009.
Popular Tax Breaks Extended For 2008 Tax Returns
• The $250 deduction for teachers who buy out-of-pocket classroom supplies. This deduction is “above-the-line,” meaning that teachers and educators can qualify for it even if they don’t itemize their deductions. Allowable expenses include classroom supplies, books and software.
• A deduction of $2,000 to $4,000 for eligible taxpayers with higher-education tuition and related fees. This above-the-line deduction allows married couples with incomes of $130,000 or less ($65,000 for individuals) to deduct up to $4,000 in higher education expenses and those couples earning $130,000 to $160,000 ($65,000 to $80,000 for individuals) to deduct up to $2,000.
• The option to deduct state and local sales taxes from federal taxes, instead of state income tax. This can mean big savings for taxpayers who itemize and live in states with no state income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
• Tax-free distributions to charities. IRA owners who have reached age 70½ — and who must therefore begin to withdraw money from their retirement accounts — can contribute up to $100,000 of otherwise taxable payouts directly to charity.
Bill Includes Disaster Relief for 2008 Midwest Storm Victims
The new law provides major tax breaks for victims of the tornadoes, storms and flooding that hit the Midwest this year between May and August, similar to those given to Hurricane Katrina victims. These include tax benefits for demolition and clean up, as well as education and housing.
The bill also offers more limited tax assistance to victims of Hurricane Ike.
Check Back With TurboTax
The new law contains many changes to taxes for individuals and businesses. More details will be added at TurboTax.com as they become available.
Updated for tax year 2009. Content provided by Kiplinger, courtesy of TurboTax, a registered trademark of Intuit Inc.