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Will Americans Get Our Tax Breaks Back?

A tax form calculator broken pencil and bent paper clip shot the frustration of filing taxes
Even under the best of circumstances, it's hard to understand the tax code well enough to do smart tax planning. But when you can't even be certain what the tax laws are going to be in the year ahead, planning becomes almost impossible.

Unfortunately, lawmakers left millions of Americans in exactly that situation when they left for their winter break without making a final decision on whether to extend dozens of tax breaks that save American families and businesses billions of dollars. Those provisions expired Monday, meaning taxpayers will have to hope for the best but plan for the worst over these valuable tax breaks.

What's At Stake

Lawmakers have been aware since they passed their last short-term patch to the tax code that many treasured tax breaks were slated to expire at the end of 2013. Among them are breaks that help a wide variety of Americans.
  • Underwater homeowners have benefited from provisions that help them avoid having to pay taxes on money they "earn" as a result of banks forgiving all or part of their mortgage debt.
  • Taxpayers in states that have no state income tax or that charge relatively low tax rates have been able to deduct sales tax instead, but under current law, that isn't available for 2014.
  • Teachers won't be able to deduct what they pay out of their own pockets for classroom supplies.
  • Those who take public transit to will see the amount they can set aside in pre-tax income to pay for commuting costs drop from up to $245 a month to $130 a month. Those who drive to work could set aside $245 a month pre-tax for parking expenses in 2013; in 2014, they'll be allowed to set aside $250.
  • Popular provisions that offer tax breaks for educational expenses and energy-efficiency improvements will also disappear.
The most frustrating aspect about all this for taxpayers is that Congress almost always extends these tax breaks -- eventually. Yet most often, lawmakers only choose to extend the provisions for a single year, citing the budget cost of making them permanent. (Some cynics suggest lawmakers have other reasons.)

But for now, those who benefit from these tax breaks have to suffer the uncertainty of whether they're actually going to come back or not on an annual basis.

Is a Fight Coming?

The Senate actually had an opportunity in late December to pass legislation extending these and dozens of other tax breaks. Some senators tried to pass a bill to get these tax breaks renewed by unanimous consent. But other senators objected, stalling the bill under the Senate's byzantine procedural rules. (Even had they done so, such an attempt might have died in the House.)

That doesn't mean that these tax breaks are dead for 2014, however. Early in 2013, Congress passed laws that retroactively renewed many tax breaks that had expired at the beginning of 2012.

With a host of contentious issues on the political agenda, lawmakers might decide to use the same strategy in 2014, leaving taxpayers in limbo for another year.

However, there's reason for hope that our representatives in Washington might come to their senses, make the tax breaks permanent (or as permanent as anything is in Washington) and end the annual fight over extending them once and for all.

Until this year, the inflation-adjustment to the Alternative Minimum Tax was one of the most important tax breaks that got renewed on an annual basis. Each year, tens of millions of Americans were at risk of paying much higher taxes until lawmakers managed to pass legislation that set the exemption amount at a higher level. But as part of the compromise that extended some tax cuts in 2013, the higher exemption for the AMT was made permanent, and future inflation adjustments will now be made automatically. A similar move for other popular tax breaks could eliminate the uncertainty taxpayers face today.

Stay Tuned

Unfortunately, once lawmakers miss the Jan. 1 deadline, there's often little impetus for them to revisit these expired tax breaks until later in the year. Until they do, taxpayers will have no options but to voice their displeasure to their elected officials -- and do the best they can to prepare for all contingencies in 2014.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.

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Do you want to know what I'm doing tomorrow?

January 03 2014 at 10:38 PM Report abuse +1 rate up rate down Reply
1 reply to tscrapirving's comment

It's so much better than what you're doing. But don't tell me what you're doing. I won't care.

January 03 2014 at 10:42 PM Report abuse +1 rate up rate down Reply

A flat tax would be the most fair. That is why we'll never see one.

January 03 2014 at 10:33 PM Report abuse rate up rate down Reply
1 reply to betty_brock's comment

Fair? Don't be a child

January 03 2014 at 10:34 PM Report abuse rate up rate down Reply

We better get our tax breaks back or Obama will go one step furter down the totum pole. He's at rock bottom now!!!!!!

January 03 2014 at 6:51 PM Report abuse +3 rate up rate down Reply

This administation takes, but doesn't give.

January 03 2014 at 6:27 PM Report abuse rate up rate down Reply

30 Yr. GDP's
From 1950 to 1980, Wages rose 78%, Prices rose 47%
From 1980 to 2010 Wages rose 1%, Prices rose 247%
During the first 30 year period all American households had their greatest buying power, the Unions were at their strongest, as was the Middle Class. Since 1980, beginning with Reagan, the assault on Unions and the Middle Class began. More that 12 million Middle Class jobs were shipped overseas so Wall Streeters can buy 300' Boats. This is why you are broke, and if you voted GOP the last 30 years, you directly created your own economic mess.

January 03 2014 at 6:14 PM Report abuse rate up rate down Reply

The problem with income disparity is that it leads to lower income mobility...it is less likely today for a person to move out of poverty into even the middle class...which by many definitions is disappearing.

And all of that can be resolved by just a little enlightened self interest...the idea that sustainability and a "rising tide" pays better "dividends" than unmitigated greed...

What really amounts to "scraps" to the wealthy can make a huge difference to those who are struggling and not change the "lifestyles of the rich and famous" one bit. There is so much wealth in our nation...but like many third world plutocracies much of the wealth does absolutely no good.

The economy would benefit if "trickle down" were a reality and if that were true we would be experiencing a boom instead of economic and wage stagnation..

The uncomfortable truth is much of today's wealth has leaked out of the pockets of the lower and middle classes into the hands of those at the top brackets...

January 03 2014 at 5:12 PM Report abuse -1 rate up rate down Reply

Supply side economics has completely failed: we have low wages, low interest rates and record corporate cash which is supposed to lead an investment-driven boom; instead CEOs are hoarding cash and not hiring because they are waiting for demand to pick up. It turns out they aren't job creators. Consumer demand creates jobs.

January 03 2014 at 4:53 PM Report abuse +1 rate up rate down Reply

Oh those poor rich, how will they ever cope:

Average income of the 1%:
1980 - $391,000 in 2010 dollars
2010 - $1.12 million in 2010 dollars

Average income of the bottom 90%
1980 - $35,085 in 2010 dollars
2010 - $36,200 in 2010 dollars

January 03 2014 at 4:01 PM Report abuse -1 rate up rate down Reply

Since the time of Reagan, conservatives stated repeatedly that the policies they advocated (i.e. tax cuts for the rich & deregulation) would increase prosperity, save jobs and "lift all boats".

Welll, we've had 30+ yrs. to see if the conservative agenda would do what they said it would.... and it hasn't.

Not only has conservatism failed, it's failed miserably, and not just economically. By making ours an economy of every man for himself and pitting worker against worker, "conservatism" has created a bitter, cynical, distrustful & divided society, which our politics reflects.

January 03 2014 at 3:46 PM Report abuse rate up rate down Reply

How telling that the Daily Finance ran the same article earlier in the week, but the list of tax breaks included the ones expiring for big business and the rich. How telling as to which tax breaks are going to expire, and which will be extended. I wonder how many of the anti-Obama posters (and I'm no fan of his) understand that their beloved GOP in the house will be the ones making these decisions, not Obama. And I guess all of these posters are also BIG business (like the oil company breaks that expired) or in the top 5% of earners (like those that get benefits of carried interest and the such), the ones that will most benefit, and the GOP will extend. All while Paul Ryan (didn't he change after the election and the influence of lobbies) types cry deficit reduction. Go figure.

January 03 2014 at 3:29 PM Report abuse rate up rate down Reply