Tax Breaks Extended
President Bush signed the bill into law on December 20, 2006. The law retroactively reinstates a number of tax breaks that had expired at the end of 2005, making them effective for 2006 and 2007. Here's a brief overview of what was extended.
• The itemized deduction for state and local sales tax was reinstated for 2006 and 2007. This is a boon for taxpayers in states without a state income tax, but taxpayers who pay both state sales and income taxes can deduct whichever is higher.
• Middle-income taxpayers can claim a deduction for up to $4,000 of qualifying higher education expenses for 2006 and 2007. This is an above-the-line deduction so you don't need to itemize to claim it. However, income limits apply.
• Teachers can claim a deduction for classroom supplies that they pay for out of their own pocket. This is also an above-the-line deduction, with a limit of $250.
• The law also extends a number of business tax credits and deductions, including the research credit, the work opportunity and welfare-to-work credits, and the 15-year recovery period for certain leasehold and restaurant improvements.
• The Energy Tax Incentives Act of 2005 provided several tax credits and deductions intended to promote energy conservation. The new lay extended certain ones through 2008.
• The law makes other miscellaneous changes to the tax code. For more information, give us a call.