Last Updated: December 21, 2009
The U.S. House of Representatives recently passed the Tax Extenders Act of 2009, which if adopted by the Senate, and signed into law by President Barack Obama, will help make financial planning all the more easier next year.
According to a recent CCH press release, the so-called 'Extender' legislation, extends several provisions that are now in place, including the itemized deduction for state and local sales taxes, the additional standard deduction for state and local real estate property taxes, the above-the-line deduction for qualified tuition and related expenses, the above-the-line teacher's classroom expenses deduction, the ability to make tax-free distributions from Individual Retirement Accounts (IRAs) for charitable purposes and an extension of special provisions on disaster losses first enacted in 2008 as part of the Emergency Economic Stabilization Act. The bill did not, however, include any fix for the Alternative Minimum Tax (AMT). According to the Internal Revenue Service (IRS), the AMT is a separately figured tax that eliminates many deductions and credits, thus increasing tax liability for an individual who would otherwise pay less tax. Learn more about AMT.
So what's a person to do who's working on income tax planning for 2010? "The main thing for taxpayers to note about it is that this has only passed the House and the Senate is not expected to pass any tax legislation before the end of the year," said FPA member Jim Blankenship, CFP®, EA of Blankenship Financial Planning.
That's the bad news. The good news is that when and if Congress passes any extender bill into law, it will likely make it retroactive. "The AMT limits provisions seems like it is delayed every year," Blankenship said. "This isn't a big deal because Congress has the ability to make changes retroactive to the beginning of the year — and these provisions won't bear fruit for most folks until the end of the year (and into 2011) when doing tax returns for 2010."
Blankenship said there's other good news in the House-version of the extender bill, including the:
- Tuition deduction. According to the IRS, you may be able to deduct qualified tuition and related expenses that you pay for yourself, your spouse, or a dependent, as a tuition and fees deduction. Learn more about the tuition deduction.
- Standard deduction for property tax. There is an additional standard deduction for those who don't qualify to itemize their tax deductions, but who do pay state or local real estate taxes. Learn more about the standard deduction for property tax.
- Tax-free charitable contributions from IRAs. Learn more about tax-free charitable contributions.
Despite all this potentially good news, Blankenship recommends that you continue to pay attention to what the Senate might do with the so-called Extender bill. "All in all, I'd say there will be more to come with regard to extensions," he said. "Though it's possible something more could happen before the end of the year, in all likelihood we'll see some more extension legislation in January."