In a classic case of tax cut and run, the Republican Majority in Congress passed a bevy of tax laws before losing control of the legislative branch. Here is the scoop.
It had to be a pretty humorous couple days in Congress. In a term marked by one of the most inactive efforts in history, the House and Senate suddenly got active. How active? They passed over 200 tax changes as part of something called the “Tax Relief and Health Care Act of 2006”. Tax relief and health care, there are two subjects that really go together. Regardless, the laws were passed and President Bush signed them before the ink was dry.
All of this was news to the Internal Revenue Service, the agency charged with actually trying to implement the strange stuff coming out of the government. To give you an idea of how this was truly a last minute move, the IRS had already prepared and sent out tax forms for the 2006 fiscal year. The agency is now desperately trying to alert taxpayers that some of the forms may be wrong given the last minute legislation. Talk about a printing bill!
So, what changes were made? Well, I am not going through all 200 plus of them, but there are a couple you should know about. Let’s take a look.
The state sales tax deduction has been extended. For the last few years, taxpayers have been allowed to deduct the sales tax charged by their state instead of state income tax. While state income tax is almost always more than sales tax, there is a notable exception. Certain states such as Washington, Texas and Florida do not collect income tax. For residents of such states, the sales tax deduction is a huge windfall.
The college tuition deduction has also been beefed up. If you are paying for your child to attend college, you can deduct up to $4,000 for money paid in the form of tuition and fees. The deduction is capped by your adjusted gross income. Parents filing as singles can claim the deduction so long as their adjusted gross income is less than $65,000. For married couples, the same is true so long as their combined adjusted gross income is $130,000 or less. Above these figures, the deduction is reduced till it disappears at $80,000 and $180,000 respectively.
On a less positive note, Congress and President Bush also allocated more money to the IRS to conduct audits. Money was also increased to pay whistleblowers who report taxpayers, particularly businesses, that are playing funny with the money.
At the end of the day, the last minute tax changes are generally helpful to taxpayers when it comes to limiting your tax debt. Of course, the IRS has a bigger budget for audits, but no pain, no gain.
Richard A. Chapo is with BusinessTaxRecovery.com - providing information on tax deductions .