January 1, 2014, was more than just the beginning of a new year. It also signaled the expiration date for 55 tax breaks, many of which may affect you or your family.
Broadly speaking, the expired tax breaks and credits affect a wide range of Americans. Luckily, each individual or business is likely only to be affected by a few.
Congress has often let tax breaks and credits expire and then passed retroactive legislation to address some of the gaps. While we're waiting to see what Congress will do next, here are some of the key tax breaks that have expired.
Work Opportunity Tax Credit
The most important one that affects members of the military is the one regarding veteran hiring. Called the Work Opportunity Tax Credit, this provided a financial incentive to businesses—especially small businesses—to hire veterans. This created additional cash flow for businesses and incentivized companies to consider veterans for open positions. This was a credit that was equal to 40% of the first year wages of employees in specific groups, including veterans.
It's been covered here on Military.com before, and it is very possible that this tax credit will be extended. In fact, Representative Bruce Baley of Iowa is pushing for legislation that would permanently enshrine this in the tax code.
Teachers and School Supplies
Teachers often pay for school supplies out of their own pocket. In fact, educators spend about $400 on average on school supplies, including books, computer equipment, etc. Until this year, they were able to write off $250 as an "above the line" expense—meaning that it reduced overall income for tax purposes. That is now gone in 2014.
This very popular tax break allowed you to take a deduction for education. This was especially important for parents or adults who are in higher education. Here's how it worked:
- If you were an individual taxpayer with income of no more than $65,000 (single) or $130,000 (married filing jointly), you could deduct up to $4,000 in qualified tuition expenses.
- If you made more than this—up to $80,000 (single) or $160,000 (married filing jointly), then you could deduct up to $2,000.
(For more on higher education expenses, see this Student Loan Resource Center)
Business Property Expenses
Businesses could deduct up to $500,000 of their property expenses in 2013. In 2014, that has now changed to $25,000, marking a dramatic drop in the amount businesses can write off.
The expiration of this particular tax break is sure to affect small businesses in particular, again, affecting their cash flow.
Mortgage Debt Forgiveness
Another reason to never accrue debt: if your debts are canceled by your creditor, the IRS may consider the cancelled amount as income and you could be taxed. However, struggling homeowners saw some relief through the The Mortgage Forgiveness Debt Relief Act and Debt Cancellation, which allowed a deduction for anyone who saw their debt cancelled through mortgage restructuring, foreclosure, or short sale. Since this will no longer exist in 2014, if you were planning on restructuring your mortgage or doing a short sale, then you may be taxed on this "income."
Fiona Lee is a personal finance writer for ReadyForZero, a website that helps people get out of debt faster on their own. She is a frugalista who loves discovering new ways to save money, especially in expensive cities. After living in New York and Beijing, she now makes her home in San Francisco. You can follow @ReadyForZero and @moderntime on Twitter.