Watch Out for these Expired Tax Breaks

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ExpiredDuring the last two years, many of us have become accustomed to a number of tax breaks that were instituted to help during a time of economic difficulty. However, these tax breaks were never meant to last forever — and they haven’t. Tax breaks that you might have been counting on are disappearing, and you might be in trouble.

In some cases, the disappearing tax breaks are a bit of a nuisance. In other cases (especially for those who should have taken a required minimum distribution on an IRA in 2010), though, the absence of a tax break you have come to rely on might be a little more difficult to deal with financially. As you file your taxes, here are some things to be aware of with regard to a reduction in tax breaks.

Tax Breaks That Are Gone

These tax breaks are just gone. They haven’t been extended, or offered for a reduced “value.” Don’t make the mistake of thinking you can take these:

  • Making Work Pay Tax Credit: For the last two tax years, many of us have enjoyed a $400 tax credit. This was available in 2010, but is disappearing for 2011. The Making Work Pay Tax Credit was added automatically to your paycheck, over the course of a year, so you might not have noticed it. The loss of this tax credit, though, is partially offset by the fact that there is a break in the Social Security Tax for 2011. However, next year, when that tax break expires, it’s going to feel like you’ve been hit by a tax increase.
  • Unemployment Income Exclusion: Gone is the exclusion that allowed you to avoid paying taxes on the first $2,400 of your unemployment benefits. If you ended up with unemployment income in 2010, you will have to pay taxes on all of it come April 18.
  • Vehicle Sales Tax: If you bought a car in 2010, you can’t claim an itemized deduction (or an increase in the standard deduction) for the excise tax paid, even though this was something you could do in 2009.
  • Disaster Losses: A special add-on to the standard deduction was allowed for net disaster losses in 2009, but if you experienced such losses in 2010, you are out of luck if you want to add on to the standard deduction. Also, gone is the standard deduction add-on for real estate taxes.

Did You Take Your RMD in 2010?

In order to reduce the burden on retirees whose retirement accounts were decimated by the stock market losses, the requirement to take required minimum distributions was waived. However, that waiver ended with the year 2009. You should have taken your RMD in 2010. If you didn’t, you are likely subject to a 50% tax penalty — which could be very difficult to deal with. If you have a good reason for skipping your RMD in 2010 (“I forgot” and “I didn’t know” probably won’t work), you can take the distribution ASAP and send a letter of explanation along with Form 5329, which is an application to waive your penalty.

It is important to be up to date on tax law. Just because you enjoyed a tax break in 2009 or 2008 doesn’t mean that it was available in 2010. Double check, and consider consulting with a tax professional to make sure that you aren’t claiming something you shouldn’t be.

(Photo: aussiegall)

{ 12 comments, please add your thoughts now! }

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12 Responses to “Watch Out for these Expired Tax Breaks”

  1. Strebkr says:

    I think come April 15th of next year people are going to be especially ticked at the “making work pay” credit. People become accustomed to certain withholdings and certain refunds. This will tick people off. Even though they knew it was temporary its going to make people mad.

  2. Kevin says:

    The Making Work Pay Credit was extended through 2011.

  3. One of the biggest losses this year is the loss of using Schedule L, which allowed for an increase to the standard deduction for real-estate taxes. There are quite a few people who don’t have a mortgage or other expenses to qualify for Schedule A, but were helped tremendously by being able to use their property taxes to lowert their tax liability.

    • Strebkr says:

      YES!!! That was a huge pickup last year. I didn’t know about it until I was filling out the form last year. I wish it was back again this year.

  4. RyanLoos says:

    Good thought on the Sch L. When I prepare taxes a lot of clients for got the real estate tax stuff. It added up for their refunds. It is had to stay up to date with all of the changes that are always in flux. Thanks for the update.

    • That’s the biggest reason I am so against people doing their own returns (other than a simple return). Many simply do not know enough to be able to forsee certain things and make adjustments, or they simply aren’t fully aware of everything they need to get it done right. Sure, they can muddle their way through a return on Turbo Tax after the fact, but I’m curious as to how much better off they would be if there was someone calling them toward the end of the year and getting them totally prepared ahead of time.

  5. Great article, and I completely agree, especially with the making work pay credit. I think many people will be pissed off, but hopefully they will realize it before they make themselves look foolish by going on a rant about it. Keep up the great articles.

  6. skylog says:

    perhaps the break in the Social Security Tax for 2011 will be back next year?

  7. Pete says:

    I’ve already seen a lot of people posting on my site upset about the expired Making Work Pay credit. A lot of retirees especially are upset as they don’t pay the social security tax, and as such, aren’t seeing the reduction in that tax to offset the loss of the MWP credit. Sorry folks, the government needs your money!

  8. With the huge national debt, I expect taxes to rise in the next few years. At least the Bush tax cuts were extended. And at least for this year, the payroll tax was decreased 2%. That’s equivalent to a 2% pay raise for us working folks.

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