More Changes to Come?

August 1st, 2008

Years ago, tax law changes were regularly enacted in the first few months of the year. Those days are over. In recent years, changes to the tax law have occurred as late as December. This makes tax planning more and more difficult for individuals and businesses. 2008 will be no different. Many provisions which expired at the end of 2007 will probably be extended into 2008 but, as of now, that is not the case.

These are some of the major proposed tax changes that have a good chance for passage before year-end:

Sales-tax Deduction

This provision, which allowed taxpayers who itemize to choose deducting state and local sales taxes rather than sale and local income taxes, expired at the end of 2007. Particularly for states that don’t have a state income tax, such as Florida and Texas, this is a huge issue. Re-instating this provision for 2008 is highly likely.

Alternative Minimum Tax (AMT)

The AMT exemption amounts for 2008 have reverted to earlier levels, so, if no changes are made to the tax law, an estimated 26 million taxpayers will fall subject to the AMT. It is very likely that Congress will enact another temporary AMT patch this year and raise the exemption amounts for 2008.

IRAs

In 2007, taxpayers who were 70 ½ or older could transfer as much as $100,000 a year, tax-free, directly from their IRAs to a qualified charity. Although the transfer did not count as a charitable deduction, it did count toward the required minimum distribution from the IRA and also reduced the owner’s estate. The chances are good that we will see this provision re-instated in 2008 but wait for passage before making any transfers this year.

Tuition and Fees Deduction

This “above-the-line” deduction for college expenses of up to $4,000 (based on adjusted gross income) also expired at the end of 2007. It is expected to be re-instated for 2008.

Teachers’ Supplies Deduction

This is another “above-the-line” deduction that allowed elementary and secondary school teachers to deduct up to $250 a year for classroom supplies purchased out-of-pocket. It expired at the end of 2007 but odds are it will be re-instated in 2008.