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2016 tax break predictions

This is a post from a member of the Freelancers Union community. If you’re interested in sharing your expertise, your story, or some advice you think will help a fellow freelancer out, feel free to send your blog post to us here.

Congress has yet to approve these tax laws—and it may affect your freelance business.

Every year, Congress passes new tax laws, lets some old ones expire or adds new life to some that would have expired.

While there are no major changes this year like there were with Obamacare last year, there are still dozens of “extenders” that Congress has yet to approve.

What does this mean for freelancers? It means hurry up and wait, since Congress has a history of waiting until the last minute (often the last week of December) before deciding which tax breaks they let fade away, and which ones they revive for the coming year.

After some holiday cheer, this could also spin into an interesting party game of “Will They or Won’t They?”…so read on and see just how this indecision may affect you.

State and local sales tax deductions

For those who live in states with high sales tax rates, or those who live in states with no income tax, the ability to write off sales taxes can be valuable on their federal taxes.

Will they or won’t they?

These deductions are likely to be extended.

School teacher supplies

A popular tax break, this allows teachers to deduct up to $250 for classroom expenses they paid for with their own money. Teachers need to keep receipts.

Will they or won’t they?

This is virtually guaranteed to be extended.

Mass transit and parking benefits

If an employer offers a parking or mass transit benefit, its employees can have up to $250 of their parking and $130 of their mass transit expenses withheld pre-tax, similar to retirement savings.

Will they or won’t they?

The fate of this tax break is uncertain.

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Mortgage debt exclusion

Taxpayers usually owe income tax when their debt is forgiven, just as if someone paid it for them. This break was created because of the foreclosure crisis, allowing taxpayers to exclude up to $2 million of residential mortgage debt due to foreclosure, short sale or mortgage modification.

Will they or won’t they?

It could go either way on this one.

Deduction for mortgage insurance premiums

The premiums on mortgage insurance have been deductible in recent years. Mortgage insurance is required by lenders when the home buyer puts down less than 20% of the cost of a home, in order to protect against loss in case of mortgage default.

Will they or won’t they?

Jury’s out on the renewal of this tax break.

Charitable IRA rollover

Americans aged 70 ½ or over can take distribution from their IRS of up to $100,000 tax-free if it is for charitable giving.

Will they or won’t they?

The rollover is likely to be extended.

Credit for home energy efficiency improvements

For taxpayers who are trying to be green or just save energy costs, this break has allowed a tax credit of up to $500 for improvements such as new windows or heating and air systems.

Will they or won’t they?

This tax credit is likely to be extended.

Higher education tax deductions

Another very popular tax break, this gives a deduction of up to $4,000 for tuition and other higher education costs. A tax professional can help determine whether the American Opportunity Tax Credit or the Lifetime Learning Credit is most appropriate for your situation.

Will they or won’t they?

This is virtually guaranteed to be extended.

Stay tuned for updates on the action (or inaction) of congress on these tax credits and deductions!

Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for consultants across the country. His website, www.cpaforfreelancers.com, has a resource section with how-to articles and information for freelancers.

Jonathan Medows Jonathan Medows is a NYC-based CPA who specializes in taxes for consultants across the country. His website has a resource section with how-to articles and information for freelancers.

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