My trusted tax source CCH reported that a tax extenders bill in the House is on the fast track to approval and enactment. It’s called American Jobs and Closing Tax Loopholes Act (HR 4213). It extends many expired tax breaks by one more year. Here are the major ones for individuals:
$500 or $1,000 property tax deduction for people who don’t itemize. This was originally for 2008 only. It was extended once for 2009. See previous post. Now it will be extended a second time for 2010.
Sales tax deduction. This primarily benefits people in states without an income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Sales tax paid can be deducted on the federal tax return. The deduction was originally for only two years, 2004 and 2005. It was subsequently extended through 2009. Now it will be extended again for one more year through 2010.
College tuition deduction. A $2,000 or $4,000 tax deduction for college tuition will be extended one more year in 2010.
COBRA subsidy. The stimulus law provided a 65% COBRA premium subsidy to unemployed. The subsidy was going to expire after May 31, 2010. Now it will be extended to the end of the year.
For the small business owners who run their business through a subchapter S corporation (“S corp”), the bill will crack down on the practice of taking a small salary and taking the rest as dividends from the S corp or leaving the earnings in the S corp. Such income splitting reduces payroll tax. The rules against income splitting will affect S corps in “professional service business” defined as:
any trade or business if substantially all of the activities of such trade or business involve providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.
There are many more obscure provisions in the bill. Altogether the bill extends 50 different tax breaks. Please read the CCH tax briefing if interested.
As I mentioned last week, once people get used to these tax breaks, it’s very difficult to remove them, even though they were originally supposed to be only temporary.
[Update: This tax externders bill stalled in Congress and didn´t pass. Some of the provisions like the sales tax deduction were passed in the Bush tax extension package. Some, like the $500/$1,000 extra deduction for property tax didn’t pass.]